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No-deal Brexit for professional services: How to prepare

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This article considers the impact of a no-deal Brexit for professional services businesses including data protection, the recognition of professional qualifications and paying VAT on the services you sell.

In the event of a no-deal Brexit, a great deal will change for businesses – and those changes will occur literally overnight. Professional services firms aren’t immune even if they don’t trade directly with European Union (EU) countries. Your preparation work should begin immediately, if it hasn’t already.

Remember that this isn’t wasted effort if it turns out there isn’t a no-deal Brexit. The preparations will still be required even if there’s another outcome other than a no-deal Brexit, such as an extension of Article 50.

It’s simply the case that a no-deal Brexit will require the work to be done with haste, rather than over the space of one or two years.

GDPR and moving personal data between the UK and EU

The General Data Protection Regulations (GDPR), which came into force in May 2018, changed how businesses store and transfer data about EU citizens.

This particularly impacted service industry players because it’s the role of many to use data as part of their business function.

Following any kind of Brexit scenario, the UK will still adhere to the GDPR because it was incorporated into UK law via the Data Protection Act 2018.

In addition, internal procedures need to be adapted for any international data transfer to understand if model clauses or other mechanisms will be needed. So, for example, transfers to the US will need to be updated for a US to UK version of the Privacy Shield that will run in parallel to the EU to US version.

Adequacy decisions after a no-deal Brexit

However, in the event of a no-deal Brexit, there may be a need to adapt processes and practices if you or a third party you use transfer data relating to EU individuals to or from another European country.

This is because the EU won’t instantly accept that the UK is GDPR-compliant and the UK Government will immediately have to seek an adequacy decision from the European Commission. Equally, the UK will have to apply its own adequacy decision to the EU.

An adequacy decision will allow the same relatively free flow of personal data as currently experienced by businesses when working with EU countries or other countries that have an existing adequacy decision, such as Switzerland.

However, it’s unclear how long it will take to put into place.

Notably, if your business is in the Isle of Man or Jersey then an adequacy decision is already in place, so this scenario will not affect you.

Restricted transfers after a no-deal Brexit

Until an adequacy decision is in place, UK businesses will be required to consider data transfers to EU countries that aren’t covered by other safeguards (see below) as “restricted transfers“.

In other words, they will need to consider these transfers in the same way they do right now when making a transfer to a country such as Australia. Companies or organisations within the EU will be required to treat the UK in the same way.

The implications of this are significant.

It could affect even the receipt within a UK business of an email from an EU citizen, for example.

However, the UK Government has said it will not enforce restrictions on movements of UK personal data to the EU/EEA – but this cannot be assumed for data transfers in the opposite direction, for which the UK has no oversight.

Appropriate safeguards after a no-deal Brexit

As mentioned earlier, don’t forget that the GDPR restricted transfer rules only apply to the above if there isn’t already an appropriate safeguard in place, such as a legally binding contract with appropriate clauses, binding corporate rules, an exception, or approved code of conduct.

It’s likely you’ll have an appropriate safeguard in place if you’re already undertaking business with a company in the EU, but you should check to make sure and ensure measures are in place before a potential no-deal Brexit.

If undertaking new business, you should ensure a contract with appropriate clauses is put in place as soon as possible.

If there’s a withdrawal agreement instead of a no-deal Brexit, the UK and EU will continue to observe the GDPR until the end of the withdrawal period, which is currently set at 31 December 2020.

Therefore, data transfers can continue during this period, although you should monitor sources such as the Information Commissioner’s Office (ICO) to see what agreements have been reached between the UK and EU.

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Will professional qualifications be recognised?

Regulated sub-sectors of the professional services industry, such as lawyers and auditors, rely on mutual recognition of professional qualifications to provide their services to the UK and to the EU.

Specific requirements vary by sector, meaning there are different requirements for lawyers than for auditors, for example.

The bad news is that, in the event of a no-deal Brexit, in the immediate term there will be no system of reciprocal recognition of professional qualifications between the UK and EU.

This means UK-recognised professionals may not be able to deliver services and advice in the EU, and vice versa.

It’s a reasonable assumption that standards bodies in the EU and UK will make moves to recognise each other’s qualifications but this may take some time to put in place, during which time workers are likely to be stuck in limbo.

This could have a significant impact on businesses where the proof of professional qualifications is a legal requirement, such as the medical profession.

You should review which roles, if any, within your business require recognition of professional qualifications and recommend that impacted individuals review steps to obtain EU recognition of their qualifications ahead of Brexit.

You may find any trade bodies of which you’re a member can help with this, or may provide advice on how to proceed.

In the event of a withdrawal agreement, the EU and UK as well as professional bodies in each country will have time to work out reciprocal arrangements.

Labour access and the movement of people

Many service businesses in the UK that also have international scope are heavily reliant on EU citizens for their workforce.

Equally, many have offices in EU states where UK citizens live and work freely at present because of the fundamental EU right for the freedom of movement for people.

Indefinite or temporary leave to remain following a no-deal Brexit

Following a no-deal Brexit, EU citizens who are already living and working in the UK will have to apply for indefinite leave to remain (ILR), which is also known as settled status.

They will need to do this individually – it is not something their employer will do on their behalf.

It’s not yet clear how the employer will immediately handle payroll issues such as tax and National Insurance contributions for these potentially settled EU citizens following a no-deal Brexit.

If a UK business needs to recruit from the EU following Brexit, and the individual will be in the UK for more than three months, the individual will have to apply for European Temporary Leave to Remain (ETLR).

Notably, this will only apply until the UK’s new skills-based immigration system comes online in 2021, which will apply to all non-UK citizens wishing to live and work in the UK.

UK workers in EU countries following a no-deal Brexit

The rights of UK citizens to live and work in the EU will depend on the country in which they reside, and the individual should consult that government’s post-Brexit guidelines.

For example, Spain has stated that resident UK citizens at the time of Brexit will have the same rights as Spanish citizens following Brexit.

A notable exception to the above is the movement of citizens between the UK and Ireland, including across the Irish border.

It is anticipated that the Common Travel Area (CTA), which predates the EU’s allowances for free movement of people, will allow both UK and Irish citizens to work in each others’ countries.

The CTA will allow UK and Irish citizens to move freely across the border and allow them to work as well as receive access to health care, education and social benefits.

Driving in the EU following a no-deal Brexit

For service industry employees having to visit the EU temporarily, such as when undertaking contract work, travelling will become a more administrative process.

There may be the requirement to apply for a visa before travelling, for example, or some form of electronic authorisation.

UK driving licences won’t immediately be recognised following a no-deal Brexit, so hiring a vehicle may be difficult, and you may need to apply for an international driving permit (with the exception of Ireland, where these aren’t required).

If you intend to take your own vehicle then you may need to apply to your insurer for a green card to extend your coverage.

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VAT on professional service exports

Much discussion about VAT after Brexit has covered sending and receiving goods, but the supply of most services are also subject to VAT, typically following the “place of supply” rules that say VAT is paid by the customer where the service is delivered (or “supplied”, in VAT terminology).

The good news is that nothing much will change in this regard. VAT will still need to be paid by the customer (including B2B sales) in their EU member state.

There will be different rules for insurance and financial services, however, related to input VAT deductions. But the UK government has not yet announced what these will be.

Some service businesses selling digital services use the Mini One Stop Shop (MOSS) to report and pay VAT via a single return in the UK.

Following a no-deal Brexit, such businesses will have to switch to the non-EU MOSS for each EU country in which they operate.

However, they can’t do this while the UK is still in the EU, although they will need to do so by the 10th of the month in which they make their first sale.

Alternatively, you could register for VAT in the EU member state(s) where you sell your services, and stop using the MOSS system. You should seek professional advice as to which option is best for your business.

No-deal Brexit for professional services firms: Three steps to prepare

The following steps should help start the process of adapting for Brexit, if your business hasn’t already started.

1. Do you need help?

Determine which Brexit preparations can be handled internally by your teams, and issues for which you might need to consult outside sources.

For example, you might want to seek help from trade bodies with relation to professional qualifications, especially if those trade bodies control vital certifications required within your industry.

You should speak to your accountant, if you have one, about the VAT implications of Brexit. If you recruit via agencies then you will need to speak to them about recruiting EU citizens following a no-deal Brexit.

2. Do some reading

Review the technical notices published by the UK government and the European Commission on how to prepare for Brexit, including for a no-deal Brexit scenario, to identify which are relevant for you.

There’s a large amount of documentation available about a no-deal Brexit scenario, and it will take some time to work through, but you should be able to find on the sections relevant to your industry.

Again, you might find trade bodies covering your industry may have prepared reports that have distilled what you need to know.

3. Speak to your customers and suppliers

Brexit is a signifiant change for UK businesses but many businesses within the EU haven’t yet fully comprehended the impact it might have on them too if a vital service supplied by a UK business becomes problematic following a no-deal Brexit.

So, start the discussion now with both your customers and suppliers.

Reassure them that you intend to carry on following a no-deal Brexit and explain to them what you’ve learned about the process.

See what preparations they have in place and perhaps suggest any you think they might need.

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