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How will Brexit affect businesses? 12 things you need to know

Oct 08

Keir Thomas-Bryant is Sage UK's dedicated expert in the small business and accountant fields. With over two decades of experience as a journalist and small business owner, he cares passionately about the issues facing businesses worldwide

Brexit impacts everybody living in the UK. However, businesses have always faced an immediate requirement to adapt because free trade in both goods and services across the European Union (EU), as well as the free movement of employees, are set to change.

No-deal Brexit is now a very likely outcome. The Confederation of British Industry’s recently said the following about this possibility:

“Having analysed Brexit preparations by the UK government, the European Commission, EU member states and companies in the 27 areas of the UK’s relationship with the EU that are most important to businesses, the CBI has concluded that no one is ready for no deal.”

In other words, an immediate root and branch evaluation of many business practices is required from all businesses.

An earlier Sage survey showed respondents cite as important a need to know how Brexit will impact tax and duty reporting, safety standards, personal data, the free movement of people, and the free movement of goods – among other things.

This article answers frequently asked questions about Brexit that might help the transition process in your organisation.

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“Having analysed Brexit preparations by the UK government, the European Commission, EU member states and companies in the 27 areas of the UK’s relationship with the EU that are most important to businesses, the CBI has concluded that no one is ready for no deal.”

12 things you need to know about Brexit!

1. What is Brexit?

In a referendum on 23 June 2016, the UK electorate voted to leave the EU. Negotiations are under way between the UK and EU governments to decide how the movement of goods, services, people and capital across the UK/EU borders will be processed following Brexit. Key from a business perspective is that Britain is currently a member of the EU’s single market and customs union, which enables its 28 member states to function as a single trading area with no tariffs or border checks, and with a combined VAT system. For UK businesses, all of this will change to a greater or lesser degree following Brexit.

 

There are widely agreed to be two likely Brexit outcomes:

Withdrawal agreement

The UK government hopes a withdrawal agreement will be in place when the UK is due to leave the EU on 31 October 2019.

Because this is still being negotiated, nothing is known by the general public about what the withdrawal agreement will entail.

The UK parliament rejected outright an earlier attempt to create a withdrawal agreement drawn up by the former prime minister, Theresa May.

Any withdrawal agreement will probably come with a transition period. During this time the majority of EU legislation will continue to apply to the UK, and negotiations between the UK and EU will continue.

The length of the transition period is unknown but the previous withdrawal agreement mentioned a period lasting just under two years.

Some government documentation on Brexit still refers to a transition period ending on 31 December 2020, which would mean the period will last just over one year following a Brexit date of 31 October 2019.

During the transition period, business should continue much as usual and required business changes should be indicated well in advance, so businesses can prepare.

No-deal Brexit

Currently both the UK and EU governments are planning for a Brexit in which there will be no withdrawal agreement in place.

Vast quantities of resource and infrastructure have been directed towards this goal, and this is accelerating as we approach the planned Brexit date of 31 October 2019.

With a no-deal Brexit, the UK will take on “third country” status in the eyes of the EU. As the UK government itself points out in the recently published Operation Yellowhammer planning document, “all rights and reciprocal arrangements with the EU end”.

This means the UK would be treated the same as countries that lack any free trade agreements for tax, customs and the movement of goods and people within the EU.

There will be no transition period in this case and significant changes for businesses will be required immediately as of 1 November 2019.

The government has issued several technical notes explaining how a no-deal Brexit would impact various industries, institutions and business processes.

The government says businesses remain unprepared, and the timing of no-deal Brexit is also problematic. The Operation Yellowhammer document says the following:

“[…] in general larger businesses across sectors are more likely to have better developed contingency plans than small and medium-sized businesses. Business readiness will be compounded by seasonal effects, impacting on factors such as warehouse availability.”

It’s clear that work needs to be undertaken immediately by businesses.

2. When does Brexit happen?

The UK officially leaves the EU at 11pm (BST) on 31 October 2019. However, there are two extenuating provisos when it comes to the regulations businesses operate under: Most EU laws applying to the UK will still apply because they will become “retained EU law” as part of the European Union (Withdrawal) Bill (with necessary modifications to remove references to, or reliance upon, EU institutions). If there as an agreement between the UK and EU then a transition period will follow, during which some EU regulations will still apply to the UK. This is intended to ease the impact on businesses and create an orderly exit from the EU.

3. How does Brexit affect trade and how will Brexit affect my business?

In broad terms, and outside of niche industries such as farming or medical research, the following areas of business will likely have to be examined and potentially revised once the UK leaves the EU.

This is largely because the UK will no longer recognise institutions that oversee these areas, or will no longer be a part of the EU free trade area:

Import and export of goods and services to and from EU countries, including associated VAT payments and (potentially) custom and excise duties.
Employment of EU citizens in the UK, and UK citizens in the EU.
State aid, including grants and block exemptions.
Transport and logistics, including fulfilment.
Product safety or eco-compliance, including packaging and labelling that references EU licensing.
Copyright, trademarks and patents.
Environmental industrial standards, including emissions.
Transfer of personal data between the EU and UK.
Mutual recognition of qualifications and relevant licences (including audit, banking and insurance licences).
In the event of a no-deal Brexit, the Operation Yellowhammer document mentions several immediate concerns as “worst case” scenarios.

Here are those that will affect general business functions directly and will require planning measures to lessen the impact:

Blockages at EU ports affecting the flow of goods into and out of the UK, with 50% to 85% of HGVs likely to be not ready for French customs requirements. Delays of up to two-and-a-half days could occur for goods leaving the UK.
Business travel could be affected by new immigration checks. Employees who are UK nationals working in other countries may lose their rights and healthcare coverage, with the situation varying depending on the country they’re working in, with many countries still lacking legislation.
There might be price increases for business energy such as gas and electricity, with some energy suppliers exiting the market, exacerbating this impact.
Some cross-border financial services will be disrupted.
The flow of data to and from the EU of the kinds protected by the GDPR will be affected, something that could last for a significant period (see “How Will Brexit Affect the GDPR” below).
Fuel availability could be affected, especially in London and the South East, with panic-buying potentially affecting fuel availability across the country.

4. How long will it take for me to adapt for Brexit?

It’s impossible to say but, according to a survey by Sage and YouGov, businesses in the UK reported that they anticipate spending an average of 15 months preparing, while countries in the EU report an ideal period would be nine months. It’s likely much of the adaptation for businesses will take place in the transition period across 2019 and 2020. If the UK leaves the EU without a deal on 31 October 2019 then businesses will have little if any time to adapt, which is why it’s important to start planning and putting in place measures immediately, if you aren’t already.

5. My business is based in the UK and only has UK customers. Will I be affected by Brexit?

There are virtually no businesses in the UK that won’t affected by Brexit. The question is one of degree and all businesses should examine their processes.

While the UK leaving the EU also presents many business opportunities, it’s likely Brexit will affect businesses in many subtle ways that will take some forethought to plan for.

For example, you might be a car maintenance business serving only UK customers but the replacement parts you require might not be manufactured in the UK.

Even items manufactured outside of the EU might be centrally warehoused in the EU before being dispatched to you.

The Operation Yellowhammer document says that “in a reasonable worst-case scenario”, there could be delays of goods coming into the UK via the main route in Kent because of HGV congestion.

Additional delays could be caused by goods being delayed in customs clearance areas.

Additionally, there may be extra costs involved with customs import duties that you formerly didn’t have to pay, and significant administrative overhead, including utilising an EORI number.

You may need to source new local suppliers to avoid possible delays and/ or plan these delays and fees into your existing procedures.

You might hold data on EU citizens who are customers, or suppliers, in which case sharing it with suppliers or customers in the EU might not be permissible for some time until agreements are in place (see “How Will Brexit Affect the GDPR” below).

The business might have a trademark that you wish to continue to protect outside the UK. If you’ve utilised an EU trade mark (EUTM) then you might need to register it afresh in whatever intellectual property protection mechanisms are put in place for UK businesses trading overseas following Brexit.

A service-based business might fall into the classification of serving only domestic customers with no direct reliance on EU sources – for example, a marketing agency.

However, even then the business may hold personal data on EU citizens (see “How Will Brexit Affect the GDPR” below), or potentially even use a website that has an .EU domain, in which case you will no longer be able to use that domain unless your business has its principle place of business within the EU.

The business might also rely on EU citizens for staffing; recent research carried out by Sage and YouGov reported that nearly half of all UK businesses employ EU citizens, for example.

This might not just be in your front-line staff but potentially within ancillary or support roles, such as office maintenance or cleaning. These might be sub-contracted through agencies, of course.

In the event of no-deal Brexit, vehicles in your company fleet might be hampered by problems with fuel availability – as detailed in the Operation Yellowhammer document – and perhaps pricing too, that could significantly decrease margins.

If nothing else, all UK businesses will serve a client base that will be affected by Brexit changes, so some forethought on how Brexit will apply to your business is necessary.

Of course, there are likely to be business benefits provided by Brexit. UK manufacturers serving UK businesses are likely to be in demand because of the potential difficulties and issues surrounding imports from the EU.

Similarly, the potential difficulties in data transfer between the UK and EU – at least initially – might mean UK companies switch to UK-based data storage.

As such, there are certainly business opportunities presented by Brexit that should be part of any preparedness plan, in addition to measures to overcome issues.

6. Will I still be able to employ EU citizens after Brexit?

Your business will very probably still be able to employ EU citizens after Brexit if they are already living and working in the UK.

Under current proposals, EU citizens will have to apply for and receive “settled status” (indefinite leave to remain) if they’ve been living in the UK for a continuous five years period, and started living in the UK by either 31 December 2020 or the date the UK leaves the EU without a deal.

There are some caveats, though, and you should view the government’s notice about this.

If the individual doesn’t have the five years’ continuous residence then they can apply for pre-settled status if they’ve been in the UK for between six months and five years (even if they’re married to a UK citizen).

Again, they will have to have started living in the UK by 31 December 2020, or the date the UK leaves the EU without a deal.

Settled or pre-settled status gives individuals the right to continue to work in the UK. Notably the application for settled or pre-settled status must be carried out by individuals and not the businesses employing them.

The government says employers will continue to have to check an applicant’s right to work in the UK, as they do now. This can be done via their passport or national identity card (including biometric residence card), or via the Home Office’s online right to work checking service.

There is a small fee required and the government will use background checks based on existing tax and NI payments among other things.

It’s not yet clear what paperwork (if any) businesses will have to process when employing EU citizens in terms of tax and National Insurance.

7. What business laws are changing after Brexit?

Information from the government says no laws will change significantly. The European Union (Withdrawal) Act aims to incorporate EU laws into UK law.

Therefore, the only changes should relate to requirements for interaction with EU institutions or bodies – and then the law should only be modified to that extent.

For example, some aspects of what was previously EU law can’t remain that refer to the Court of Justice of the European Union, because they will no longer have jurisdiction in the UK.

Additionally, laws governing import and export duties and taxes such as VAT may have to change because these previously allowed for free trade within the EU and reciprocal VAT arrangements.

However, while these changes might be minimal, their effects on businesses could be huge depending on the nature of the Brexit agreement achieved between the EU and UK.

8. How do I perform a Brexit impact assessment?

Businesses should discover how Brexit will impact them in order to revise existing processes and plan any necessary changes (including contingency plans for the Brexit transition period). The first step is to organise an impact assessment. Here are some questions to kick-start the planning and discussion processes. (This list is by no means exhaustive or authoritative.)

 

Employment and services

  • How is your workforce affected?
  • Do you employ any EU citizens, in the UK or in the EU, or do you plan to?
  • Does your business rely on any specialist or service located in the EU – even if you ordinarily communicate with a UK branch of the business?
  • Do any of your staff need to travel to EU countries?
  • Does your business have any European trade union obligations?

Operating standards

Import/export and logistics

  • Does your business import or export goods to or from the EU?
  • Do you use an agent or utilise license schemes?
  • Do you or any of your suppliers temporarily store goods in a warehouse based in the EU, even if they’re manufactured elsewhere (such as China)?
  • Do you work with fulfilment agencies?

Taxes and money

  • Is your business VAT registered or do you operate under the MOSS agreement?
  • Does your business hold money in EU financial institutions, or use any other financial instrument located outside the UK?
  • Does your business rely on funding or grants that comes from the EU? (Notably, even some funding that appears to come from the UK government is often backed by the EU.)

Manufacturing

  • Does your business own any patents, trademarks or registered copyrights?
  • Does your company manufacture products that must certify to EU safety, security or ecological standards?

Information technology

  • Is any of your data hosted in an EU country (including cloud storage)?
  • Do any employees travelling within the EU have mobile phone coverage for both data and calls?

Data

  • Do you hold personal data about people based in the EU on UK servers?

Professional qualifications

  • Do you provide any services that are restricted to people holding a relevant qualification?

Miscellaneous

  • Do you dispatch goods or documentation to the EU via postal or courier services?

9. My business sells to UK individuals but is not based in the UK or EU. Will I be affected by Brexit?

Rules covering imported goods from outside the EU aren’t changing post-Brexit, so little should change on a practical level for manufacturers or resellers.

It’s likely there will be new import documentation required, though, and it’s unlikely you will be able to use the same documentation as is used for other EU countries. Logistics methods and costs might alter slightly, too.

However, watch for incidental and/or hidden costs within all of your existing business processes. For example, should any of your employees need to visit the UK then existing travel insurance that covers the EU might no longer cover the UK.

Hiring a car or using a mobile phone might be more complicated for the same reason, and moving freight within the country might be more complex too.

10. How will Brexit affect the GDPR?

The UK government has adopted the GDPR into national law as part of the Data Protection Act 2018, so once the UK leaves the EU, the same protections and requirements will apply.

In other words, how your business handles personal data won’t change if you have correctly implemented the GDPR within your processes.

The UK is hoping to become a “favoured nation” via an “adequacy decision” on behalf of the EU, which should facilitate the free transfer of data without the need to implement additional safeguards.

However, this will not be in place immediately following the Brexit date in the event of a no-deal Brexit. In the Operation Yellowhammer document, that details a “reasonable worse-case”; the government says “an adequacy assessment could take years”.

This could be severely disruptive for virtually any business that works across borders and could affect everything from retaining emails, to databases and cloud services.

If a withdrawal agreement is in place, the adequacy decision will probably be completed during the transition phase.

The EU has published a Notice to Stakeholders discussing potential outcomes for data protection.

11. Are the financial markets affected by Brexit?

As the negotiations continue, Brexit continues to affect business confidence both in the EU and UK, with both positive and negative swings.

YouGov’s research in partnership with Sage shows 57% of UK enterprise companies are concerned Brexit will have a strong impact on their business, with 49% of EU enterprise companies feeling the same way. 66% of UK companies say Brexit will impact them, while 53% of EU businesses echo this statement.

There is clearly a lot of uncertainty and this is likely to continue past Brexit and into the transition period. This will undoubtedly affect the financial markets.

Brexit uncertainty is also affecting euro and US dollar exchange rates against pound sterling, with both showing huge volatility reflecting the market’s consideration of the latest Brexit announcement from either the UK or EU leaders.

It might be that once the withdrawal agreement is ratified by the UK and EU parliaments, this uncertainty settles at least a little.

12. Are Sage products ready for Brexit?

Sage has project teams who are focusing on preparing for implementations influenced by Brexit, whatever the outcome.

These include a programme of work designed to ensure all areas of our business and products will be ready for Brexit, irrespective of whether a withdrawal agreement is reached.

Sage has always placed a high level of importance on legal compliance and customers can trust that Sage will address Brexit with the same attention and focus as is customary.

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