How should my small business be preparing for Brexit?

The UK formally left the European Union (EU) on 31 January 2020, setting in motion a transition period which came to an end on 31 December 2020. 

• A trade deal was agreed on 24 December 2020 which details new rules for “living, working and trading together” post-transition. 
• The new trade deal came into effect on 1 January 2021. 
• According to the UK government, the new deal “preserves its zero-tariff and zero-quota access to the bloc’s [EU’s] single market”.
• However, there will now be new checks at borders, such as safety checks and customs declarations.
• Businesses offering services, such as banking, architecture and accounting, will lose their automatic right of access to EU markets and will face some restrictions. However, the EU and UK have pledged to look at ways to lift some of these restrictions. 

Here is what the Prime Minister Boris Johnson has said:

“This Agreement with the European Union is designed to honour the instruction of the British people – expressed in the referendum of 2016 and the general election last year – to take back control of our laws, borders, money, trade and fisheries. It changes the basis of our relationship with our European neighbours from EU law to free trade and friendly cooperation.

So, what can you do to prepare your business for the implications of Brexit now it is very much here? 

Now a trade deal has been agreed, it is much clearer to understand how your business will be affected. Here are some of the main areas that will be affected, either directly or as a knock-on effect of the UK leaving the European Union:

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

Whilst it’s 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.  

The first part of the Brexit debate after the referendum focused on the withdrawal terms for the UK leaving the EU. 

The withdrawal agreement

The Withdrawal Agreement Bill, negotiated with the EU by Theresa May, and subsequently by Boris Johnson, includes the following terms:

• the ‘divorce bill’ – money that is owed by the UK
• the EU-UK border
• citizens rights

Theresa May’s original Withdrawal Agreement Bill was voted down three times in Parliament. Boris Johnson was eventually able to secure a majority for his bill under renegotiated terms, however, implementation was delayed until after the General Election. With the Conservative Party winning the election, the bill was reintroduced and passed on 20 December 2019, setting in motion the UK’s exit from the EU on 31 January 2020. 

The withdrawal agreement set out a transitional period, which lasted until 31 December 2020. During this period, the UK continued to trade with the EU based on existing rules. This was to alleviate the potential sharp shock, or ‘cliff-edge Brexit’, of the UK moving abruptly to a non-EU based trading regime.

The trade agreement

The next phase of discussions concerned the future trading relationship between the UK and the EU. Both parties were locked in negotiations for most of 2020 with a deal finally being agreed on 24 December 2020, days before the transition period was due to end. 

The securing of a trade agreement averted the no-deal scenario which many feared. Failure to implement a new trade agreement would have meant the UK revering to standard World Trade Organisation rules. It is likely that this would have caused significant disruption and damage to the UK economy. 

The Christmas Eve trade agreement means that the UK will maintain its zero-tariff and zero-quota access to the EU’s single market. That means no taxes on goods (tariffs) or limits on the amount that can be traded (quotas) between the UK and the EU.

100% of UK-EU trade will continue to be tariff-free. This is a significantly better scenario than the prospect of businesses having to pay tariffs on imported and exported goods. 

However, because the UK has now left the Customs Union, a hard customs and regulatory border now exists between the EU and UK. 

Here’s a quick summary what that will mean for importers and exporters:

• You’ll need to get an EORI number to move goods between Great Britain (England, Scotland and Wales) or the Isle of Man and other countries.
• All goods exiting the UK into EU countries will require export declarations and exit Safety and Security declarations.
• VAT on imported goods worth up to £135 is now collected at the point of sale, not the point of importation. That means UK supply VAT rather than import VAT is due on such consignments.
• The government has introduced “postponed accounting” for import VAT on goods brought into the UK – more on that below. 
• If you buy online from suppliers in the EU, customs duties (for deliveries worth more than £390), VAT (more than £135) and handling fees could also apply and parcels could be held until all duties and fees have been paid.

Read more: Selling to EU countries – what could change post-Brexit transition
Read more: 21 ways the Brexit trade deal could affect your business

There’s no quick answer to this question.

Many businesses will have been worried about the extra costs of trading with EU partners. Whilst zero-tariffs is definitely a good thing in this respect, customs duties may still need to be paid. Businesses will also face the burden of additional paperwork such as customs and safety and security declarations. We’re already seeing delays at border points as a result, though it is hoped this is just a teething issue. 

Longer term, it remains to be seen how Prime Minister Boris Johnson’s vision of a Global Britain will play out. By leaving the EU the UK will be free to strike its own trade deals, opening up the global market and freeing businesses from the bloc’s regulations. 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

At the moment it is unclear how far the UK will depart from EU regulation post-Brexit. Whilst the UK is free to make its own rules, regulations and standards going forward, the two sides agreed to a common baseline – the current state of affairs. Should the UK decide to move away from EU rules – e.g. relaxing health and safety standards – this would call into question the ‘level playing field’ needed for frictionless trade. 

“The more divergence there is, the more distant the partnership has to be.” 

Ursula von der Leyen, European Commission President

Prior to the trade agreement, businesses with links to Europe will have been worried about the highly disruptive implications of no-deal on their supply chain and cash flow. 

The trade agreement alleviates some of these concerns but may still mean more delays and costs which need to be factored into your planning. 

Post-Brexit, 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 trade agreement means there will be no tariffs for EU imports, 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, you need to be mindful of how the economic situation will impact on demand – whether you’re B2C or B2B. 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.

• Read more: Brexit: how will selling online to EU customers change?

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 a 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
• Read more: How VAT could change after Brexit

Legislation is in place to lift and shift VAT into UK law and it is unlikely 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.

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 the future trading relationship:

• 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.

• Read more: How will Brexit affect my staff?

CIPD have produced a detailed guide, available to download below, that looks at how you can prepare – regardless of the different Brexit outcomes. 

Going forward, the government has indicated a preference to introduce a points-based immigration system post-Brexit. 

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:

• Employing EU citizens 
• Importing
• Exporting and transporting
• Operating in the EU 
• Regulations and standards 
• Using personal data 
• European and domestic funding 
• Intellectual property
• Energy and climate 
• Public sector procurement

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

• Professional and business services
• Electronics, machinery and parts
• Chemicals
• Fish import/export 
• Construction
• Retail
• Automotive
• Aerospace
• Timber import/export
• Exporting animals and animal products 

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”.

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”. 

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.