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

Published · 10 min read

Brexit will impact everybody living in the UK. However, businesses face 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.

How will Brexit affect businesses? Recent research from YouGov on behalf of Sage indicates 76% of UK businesses are aware that Brexit will have an impact, and 57% say they will need to adapt their business processes. However, two-thirds are yet to implement any changes.

Survey 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.

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

This article answers frequently asked questions about Brexit that might kick-start this process in your organisation. The questions are (feel free to click on the question below to jump straight to the answer or read through the answers in order):

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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:

Soft Brexit

On 14 November 2018 the EU published a 585-page draft withdrawal agreement that has been agreed by both UK and EU negotiators, which will allow for a soft Brexit—which is to say, the four freedoms comprising the movement of goods, services, people and capital will be easily facilitated between the UK and EU in some fashion following Brexit.

There will also be a transition period ending 31 December 2020, during which negotiations will continue, and during which some EU legislation will continue to apply to the UK.

The draft agreement is broadly based on the Brexit white paper, known informally as the “Chequers Agreement“, named after the prime ministerial country retreat where the agreement was announced.

Hard Brexit (also known as “no deal” Brexit)

The UK will take on “third country” status in the eyes of the EU. 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. The government has issued several technical notes explaining how a “no deal” Brexit would impact various industries, institutions and business processes.

Both the UK government and the EU have clearly stated they’d prefer to avoid a “no deal” Brexit.

The UK officially leaves the EU at 11pm (BST) on 29 March 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, ending on 31 December 2020 (or possibly later), 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.

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, 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).

It’s simply impossible to say but, according to the YouGov survey, businesses in the UK report 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 the 2019 and 2020.

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 Brexit 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, so you may need to source new suppliers to avoid possible delays and extra costs involved with potential customs duties, or plan these delays and fees into your existing procedures.

Even items manufactured outside of the EU might be centrally warehoused in the EU before being dispatched to you, and could therefore be affected in terms of import duties (that could involve goods being delayed in customs clearance areas) and the logistics of getting them to you.

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 require special measures (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.

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 that 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.

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 five years or more, or 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).

Settled or pre-settled status gives individuals the right to continue to work in the UK, and continue to pay tax and National Insurance like any other employee.

It’s not yet clear what paperwork (if any) businesses will have to process when employing EU citizens, but notably the application for settled or pre-settled status must be carried out by individuals and not the businesses employing them.

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

Recruiting EU citizens who don’t already live in the UK following Brexit is likely to be more difficult, with the plans under consideration treating EU citizens in the same way as non-EU citizens currently.

Businesses will be able to recruit based on skills, although with salary threshold limitations intended to protect the employment market for those already in the UK.

No laws will change significantly. The European Union (Withdrawal) Act (known previously and informally as the Great Repeal Bill) 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.

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

Do any standards govern the work you do, such as European EN 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?

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.

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 may not be in place immediately following the Brexit date and will probably be completed during the transition phase.

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

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 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.

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.

How will Brexit affect businesses? Final thoughts

There’s no doubt that preparing a business for Brexit continues to be difficult due to the current uncertainty. In all likelihood, this situation isn’t likely to change until the transition period ends in December 2020 (assuming a soft Brexit occurs).

However, as we’ve shown here, there’s a surprising amount of information available to help you prepare. Making good use of it can mean the difference between being ready for Brexit and being left behind.

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