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25th July 2019
This blog will investigate what Brexit means for small businesses and help you prepare. Brexit has been (and continues to be) one of the most daunting and confusing times for British businesses. When will we leave? What deal will we get? Will we even leave at all? The nation has been shrouded in uncertainty.
Sage conducted a survey on the impacts of Brexit on small business and found that:
Each point is valid and not that surprising, and there is a theme connecting all three – uncertainty. UK businesses know that Brexit will affect them, it is more a question of how. How can you be fully prepared as a business?
Put simply, yes, if we leave. Chairman of the Federation of Small Business, Mike Cherry’s statement reiterates the ‘if’ in the first sentence of this paragraph:
“Longer term, there are many questions in the air, particularly around what our future trading relationship with the EU will look like. All of these questions make it extremely hard to judge how Brexit will ultimately impact small businesses.”
There are questions surrounding multiple outcomes for Brexit, but there are no doubts it is going to have an effect on British businesses.
There are four main areas that small businesses need to be wary of when it comes to Brexit.
The end of free movement and tighter immigration means UK businesses are having to rethink recruitment and skills strategy. The Chartered Institute of Personnel & Development states there was a 95% decrease in EU nationals joining the UK workforce in the first quarter of 2016. The CIPD also stated that 44% of UK businesses experience recruitment challenges and a further 34% struggle to retain staff.
However, the Post-Brexit Immigration System that is being proposed by the UK government means low-skilled immigrants will be allowed into the country on a 12-month work contract. The cap on highly-skilled immigrants will also be lifted. This is a viable solution for SMEs in the UK, depending on our eventual exit circumstances.
The Bank of England believes UK banks are strong enough to withstand a disorderly Brexit.
However, a period of market turmoil is inevitable. There will be a lack of investment in SMEs as the money previously from small business markets investment begins to flock to safe havens of strong business. That means gaining funding may be harder without the EU.
However, the UK government are proposing the UK Shared Prosperity Fund (UKSPF). The programme aims to tackle social inequality in less economically advanced areas of country by increasing productivity. In theory, it will be easier to get funds when the government publish what the UKSPF will look like.
The UK was one of the fastest-growing economies before the Brexit referendum. The International Monetary Fund predicts the UK will continue to grow 1.5% if an orderly Brexit occurs.
Dr Ross Brown, a reader in entrepreneurship and small business finance at the Centre for Responsible Banking and Finance at the University of St Andrews, believes Brexit does present growth opportunities for SMEs.
In fact, some SMEs are opening EU offices to access new markets and talent pools.
The UK goods and services continue to be sought after and in high demand globally. In 2017, the UK exported around £342 billion to non-EU countries and a further £274 billion to EU Countries. As of June 2018, UK exports were up by 4.4% on the same time period as the previous year. Shifting towards an economy of faster exports rather than imports should be good for SMEs, if the government agrees new trade agreements with the EU and other countries. However, what Brexit has taught us so far is that these things take time, and it will take time to renegotiate trade relations with the rest of the world.
These four factors are the major points that UK SMEs need to be aware of and the factors they must understand as business owners. There is a lot of debate surrounding Brexit and the uncertainty can make the whole process even more complex. However, there will be impacts upon British business and failing to prepare (even in the slightest) would see your company in a weak starting position post-Brexit.
Sage state that UK SMEs that trade products and services are worried about increasing cost and red tape after the UK’s European exit.
Under the informally known Chequers Agreement, there could be a new ‘frictionless free’ trade area completely free of customs, declarations and regulatory checks at borders.
In the event of a no-deal Brexit, Britain will switch to third-country status in the eyes of the EU. Custom duties will have to be paid and declarations must be made. Plus, businesses that import and export goods and services need to register for an Economic Operator Registration and Identification number (EORI). The government advises businesses to investigate hiring an export broker and begin to understand how using software can help your business.
Domestic VAT is not changing in the UK. However, UK businesses are worried about how VAT will paid on imports and exports. SMEs could be hit by cash-flow problems if VAT must be paid immediately, as well as increase in admin demand.
The Chequers Agreement regarding VAT states there will be “common cross-border processes and procedures” to ensure declarations and border checks are not required after the British EU exit.
A no-deal Brexit would mean that postponed VAT account would apply to the UK imports and exports. UK VAT Registered businesses can account for VAT in their VAT return, rather than when goods arrive or depart the United Kingdom.
For SMEs offering VAT-registered services, the “place of supply’ rules stay same. VAT MOSS system users need to register again for VAT in each EU state under new non-union MOSS scheme.
The government has published notes on a no-deal Brexit, detailing what will happen in the event of no deal and how you can deal with issues you may face as a UK business. The government also published a white paper, called ‘Preparing for a no deal EU Exit‘ to explain it in simpler terms.
As previously mentioned, uncertainty surrounding the UK’s eventual exit or non-exit makes preparation hard. However, the government do recommend planning for worst, although they do stress that planning for no deal is different to saying it will happen.
The government published the future relationship between the UK and EU. This document outlines new trade agreements and customs agreements that would treat the EU and the UK as ‘combined customs territory’ under various common rules for the both parties. The agreement is still being negotiated and may change.
You must speak to everyone in your business, and that means everyone from your staff to your suppliers. We would recommend reaching out to your competitors and/or trade organisations, as they may have some useful advice on factors that you hadn’t thought of. Don’t forget, these conversations cannot happen too soon, as Brexit is due to happen on October 31, 2019.
Ask your staff to document daily business and then flow-chart it, list it, or use whatever system makes it easy to understand your processes clearly. Highlight areas that may need changing or adapting and, again, talk through the options with your company and employees.
Improvisation, adaptation and the ability to overcome are key to Brexit. You may have to make quick choices that have big consequences.
If you are still unsure about what Brexit means for SMEs please, do not hesitate to contact us, we are here to help. Just fill in this quick contact form below and we will be in touch.
If you want to know more, or would like some further information on Brexit, please fill in your details below and one of the team will be in touch. Alternatively, give us a call on 0333 200 0714.
have you read our previous post?