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How should my small business be preparing for Brexit?

Whilst there remains political deadlock over Brexit and the UK is currently on course to leave the EU without a deal, there are a number of resources available to help your business prepare – even whilst the outcome remains unclear.

What is the current situation with Brexit?

The UK was scheduled to leave the European Union (EU) on 29 March 2019. However, failure to pass Theresa May’s withdrawal deal through Parliament has led to the EU granting an extension:

  • A six-month extension was agreed on 11 April 2019 with a new deadline of 31 October 2019 being set. 
  • The new Prime Minister Boris Johnson is determined to leave by this deadline and has made it clear his government will not look to delay Brexit further.

According to the government:

“Leaving the EU means your business may need to prepare for change.

“Delivering a deal negotiated with the EU remains the government’s top priority. With an implementation period until December 2020, this would give businesses stability, certainty and time to prepare for our new relationship after EU Exit.

“However, the government must plan for every possible outcome, including no deal. Without a deal, businesses may need to take action before the deadline.”

So, what should you do?

How will Brexit affect my business?

There are still so many unknowns, especially whilst it remains unclear if the UK will leave having signed a withdrawal deal with the EU or not. That said, either way, Brexit is likely to impact on your business in the short and long term – even if you do not trade internationally.

Here are some of principle areas that will be affected, either directly or as a knock-on effect:

  • International trade
  • Supply chain
  • Customer base
  • Tax and VAT
  • Workforce

Whilst its hard to be specific given every business has a different situation, we’re going to cover some of the key questions with some general advice and practical pointers.

At the end of the article you’ll find various resources provided by different business groups to help you prepare for Brexit.  

What is the difference between leaving with a deal or no deal?

Much of the Brexit debate since the referendum has focused around the withdrawal terms for the UK leaving the EU. The Withdrawal Agreement, negotiated by Theresa May with the EU, covers the ‘divorce bill’, the EU-UK border, and citizens’ rights amongst other things — however, it has been voted down three times in Parliament

The agreement also set out a transitional period where the UK would continue to trade with the EU based on its current arrangements. This was to alleviate the potential sharp shock, or ‘cliff-edge Brexit’ as some call it, of the UK moving abruptly to a non-EU based trading regime. The notion was that the transitional period would set in motion the negotiations for the UK’s future trading relationship with the EU. To be clear, the Withdrawal Agreement does not go into this detail.

The no deal scenario sees the UK leave the EU without agreeing on withdrawal terms. In which case, there will no transitional period. The UK will be outside the single market and will automatically switch to trading under the World Trade Organisation rules.

The main consequence of this will be a change to tariffs and customs checks. This is likely to cause increased paperwork, delays and have a knock-on effect on prices for some goods. The government has listed its tariff schedule in the event of a no deal Brexit and is committing funds to prepare key border points. Despite this, most economists and business groups see that a no deal will cause significant pain to the UK economy.  

11.07

Video: what happens when the UK leaves the EU?

by Channel 4

A pretty good video explainer from Channel 4 looking at the various different scenarios and what they might mean. 

What will be the impact for businesses who export?

Only 110,000 UK businesses are currently exporting according to HMRC figures. If you’re a business who exports to the EU, it’s likely you’ll be watching developments closely as a matter of course.

Currently, 100% of UK-EU trade is tariff-free. As a member of the customs union, UK exporters comply with EU rules that are standardised across the trading bloc. This enables imports and exports to cross borders freely. Should the UK leave without a deal, all exports will face EU tariffs and customs checks – as the UK will be subject to ‘third country’ trading status (although this will need to be applied for and approved by the EU which is not guaranteed and may take time).

For example, a business that exports animal products (meat, dairy products, eggs, etc) would need to submit paperwork that “prove the consignment complies with the quality and health standards of the destination country – in this case, the EU”. The importer will then need to pay tax and duty on the goods, dependent on the classification of the goods. These extra costs are likely to be passed on to consumers which could impact the attractiveness of UK products in EU markets.

That doesn’t sound ideal. However, a no deal scenario does open up trade with countries outside the EU. Under the withdrawal agreement, during the transitional period, the UK would still be subject to the same trade regime as EU members – critically, unable to strike its own trade deals and still abiding by the EU’s regulatory standards. Under no deal, these trading arrangements would no longer apply – freeing the UK and its businesses from the bloc’s regulations and opening up new trade markets. Certainly, some businesses will see this as a win, potentially saving on the costs of regulatory compliance, and making their products more financially attractive in markets such as the United States.

“The same regulatory burden has to be suffered by a small business as it does by a company with 10,000 employees. We have to compete in a world market against America, China, Australia. These companies do not have to comply with the EU regulatory burden that we have … So Brexit, for us, is a hurrah moment. It’s where we can free ourselves from these chains and this burden that’s held our business back.”

Simon Boyd, the managing director of the Dorset-based steel manufacturer REIDsteel speaking to the Atlantic

That said, every indication is that the UK’s departure from the EU is unlikely to lead to a major change in UK regulatory standards – the so-called red tape – as this will be a key negotiation point in future trade talks.

What will be the impact of Brexit on my supply chain and cash flow?

Again, the impact on your supply chain will be determined by the nature of the UK’s withdrawal from the EU – with a deal or no deal.

The transition period set out in the Withdrawal Agreement will provide some breathing room and some assurance for businesses in the short term. This would avert the doomsday scenario on 1 November of lorries queued up on the M25 and the disruption – not to mention cost – of customs checks and duties.

The no deal scenario is likely to be deeply disruptive for those who trade directly with the EU as we’ve just outlined in the previous section. Businesses across the board are likely to see some disruption as a knock-on effect – though this will vary depending on your industry and business model.

Take a look at your supply chain and evaluate the interlinked costs and dependencies. This might be an opportunity – regardless of Brexit – for you to improve efficiencies and make savings as well as assessing any potential risks. For example, will border disruption push back lead times for a key supplier?

Currency fluctuations post-Brexit are just one of the many factors that might affect how much cash is coming in and out of your business. Creating a number of cash flow forecasts based on different scenarios, using government forecasts as a reference, will help you identify vulnerabilities over the coming weeks and months.

Businesses are changing their plans due to Brexit and this could have an impact on your business – whether they’re a key customer or a supplier.

Get in touch and find out what their plans are. See if you can align your planning to alleviate disruption. It’s better to know sooner rather than later.

What impact will Brexit have on my customers?

In the event of a no deal Brexit, tariffs, currency fluctuations, and customs disruption are likely to lead to delays and price changes on some goods for businesses and consumers alike.  

Food prices are a frequently cited example. In 2016, over 40% of the UK’s £30.3 billion food imports were from the EU. While the UK government has said there will be no tariffs for EU imports as part of its temporary no deal measures, additional documentation and border checks are likely to increase transport times.

“The retail industry has been crystal clear in its communications with government over the past 36 months that the availability of fresh foods will be impacted as a result of checks and delays at the border.”

British Retail Consortium (BRC)

Many suggest this will lead to the additional costs being passed on to consumers in the form of price rises.

There are some who are more optimistic.

A prime example is that of oranges.

The EU tariff on oranges was increased to 16% two years ago. This means that all oranges imported from outside the EU have a 16% tariff slapped on them so that Spanish and other EU orange growers can add up to 16% to the world price for their own oranges and sell them into the UK.

The UK has no orange production to protect, so a zero tariff here would lower prices for oranges from outside the EU instantly by 16% – and would probably cause a drop in price of oranges from within the EU.

Jeff Taylor
The Economic Voice

Even in the unlikely event that your supply chain is totally unaffected, whether you’re B2C or B2B you need to be mindful of how the economic situation will impact on demand. For example, if you sell luxury goods, there may be less demand for expensive items as consumers cut back on their outgoings. Or, alternatively, if you’re a UK producer you may find that your products are more competitively priced and attractive to consumers and businesses in the post-Brexit landscape.

How will Brexit impact on VAT?

During the referendum campaign, Michael Gove made the claim that: “We cannot lower VAT rates as long as we are in the European Union.”

This is not strictly true. As a member of the single market, the UK does control its VAT rates to a point, but it must abide with EU rules on minimum rates. This is to create an level playing field for all businesses across the EU. 

  • EU minimum standard VAT rate: 15%
  • UK standard rate: 20%

This means the UK could bring VAT down as low as 15% if it wanted to. The EU also allows one or two reduced rates – no lower than 5% – for certain items on a pre-approved list.

Read more: VAT on imports and exports

Legislation is in place to lift and shift VAT into UK law and it is likely to be abolished given its value to public finances.

However, changes will be necessary to the “VAT rules and procedures that apply to transactions between the UK and EU member states.”

There are three key areas that are most likely to impact your business:

  • The government will introduce postponed accounting. Businesses will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border.
  • When selling to EU consumers, distance selling arrangements will no longer apply and UK businesses will be able to zero rate sales of goods to EU consumers.
    • However, these goods will be treated by EU member states as non-EU with the associated import VAT and customs duties.
  • UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists. However, evidence of the sale will still need to be retained (how it needs to be recorded has not been confirmed yet).
    • As above, these goods will be subject to the associated import VAT and customs duties – which may vary depending on the EU member state.

More guidance on the VAT under a no deal scenario can be found on the GOV.UK website.

What will be the impact of Brexit on my workforce?

Many businesses will have staff members who are European Economic Area (EEA) nationals and are concerned about what Brexit means for them. Many business owners will be EEA nationals themselves. There has been some confusion around this: namely, will EEA nationals be able to live and work in the UK as they did under EU law?

Regardless of whether there is a deal or no deal:

  • EEA nationals will need to make a free application under the EU Settlement Scheme (either online or using an Android app).
  • EEA nationals will need to prove their identity with the following:
    • email address and phone number
    • current passport or national identity card.
  • All EEA nationals and their family members must apply before 30 June 2021 (or 31 December 2020 in the case of a no deal Brexit) to continue living and working in the UK.

Upon successful application, you’ll be given either settled or pre-settled status.

The right to continue living and working in the UK is clearly a pressing issue, however, the wider impact of Brexit on your workforce planning should be assessed. CIPD have produced a detailed guide, available to download below, that looks at how you can prepare – regardless of the different Brexit outcomes. 

More guidance on how to prepare your workforce on the CIPD’s Brexit Hub.

Government Brexit advice for small businesses

The government has published advice aimed at businesses on how to prepare for the UK leaving the EU. Businesses can visit government portal GOV.UK and answer ‘7 simple questions‘ to read guidance most relevant to their sector and circumstances. 

There is advice on the various ways UK businesses will be affected by the UK leaving the EU, including:

GOV.UK also features specific guidance on preparing for Brexit for sectors such as:

FSB Brexit advice for small businesses

The Federation of Small Businesses (FSB) has also published online Brexit guidance that it claims can “help you make the right plans for your business”. The guide explains what the FSB believes will happen in the event of a “no deal scenario” and includes a business continuity/contingency planning chapter, which “sets out what a good contingency plan should cover”.

Crucially, the FSB guidance also answers the key question – What should small businesses be thinking about in the eventuality of a no deal? – covering financial issues, legal issues, trade in goods, trade in services, employing people and EU funding.

The FSB says it “wants to see a good pro-business deal reached with the EU” because this is “in the best interests of smaller businesses in the UK and the EU”. It describes a no deal/no transition period outcome as the “most disruptive scenario for business continuity in the short term”.

British Chambers of Commerce Brexit advice

The British Chambers of Commerce (BCC) describes the UK leaving the EU as “one of the biggest economic changes in a generation” and is “focused on the practicalities of Brexit for business communities across the UK”. The BCC believes that it is “crucial that businesses are doing all they can to prepare for the future”, so it has “compiled resources to help firms plan for change” and has created a Brexit Hub

It has also produced a handy 10-page Business Brexit Checklist (PDF), covering such key considerations as workforce, cross-border trade, taxation, currency, IP, contracts, regulatory compliance and data protection. Brexit Agreement FAQs (PDF) are answered, while the BCC has published a list of “20 critical questions that remain unanswered” for business in the “unwelcome event of the UK leaving the EU without a deal”. 

IoD and other sources of Brexit advice

The Institute of Directors (IoD) has also created a Navigating Brexit hub, with members able to download a factsheet on Business Planning for Brexit. The IoD has also published Guidance on the Government’s Brexit ‘no deal’ technical notices, conveniently summarising key points. The hub brings together the latest Brexit news, videos of need-to-know Brexit facts for businesses and webinars.

The Forum of Private Business provides its members with a free helpline, through which it will help with Brexit queries. Your bank or trade association (find yours via the Trade Association Forum website) may also have published advice on how to prepare for Brexit. Local councils and business support organisations have also been providing advice to small businesses on preparing Brexit. All organisations are urging small businesses to act now to mitigate risk and try to minimise disruption, whichever way the UK ends up leaving the EU.
 

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