How will Brexit impact UK businesses in 2021 and beyond?
While the coronavirus has consumed headlines over the last year due to the threat it has posed to public health and businesses across the world, in the UK, another potentially catastrophic event is looming – Brexit.
Although there is still a great deal of uncertainty surrounding Brexit, uncertainty often brings about unwanted costs and knowing how to mitigate this could be the difference between your business’s survival, or collapse.
The political, economic, social and trade implications of Brexit will likely affect business planning for the next decade. However, there are several steps you could take to ensure you are in a stronger position to hedge against the unexpected.
How will Brexit affect my business?
The honest answer to this question is, every individual’s situation will be different; however, there are areas of disruption that all business owners are likely to face.
We advise business proprietors to continue monitoring the situation closely and not to discount anything before scrutinising its relevancy to your operations.
However, with the end of the transition period upon us, we’ve put together a checklist on areas of change you should consider to help brace your firm for the impact of Brexit and build resilience to any unexpected changes:
- Investments may continue to decline in 2021, and productivity growth is likely to stall, which could result in a substantial economic contraction.
If investors shun the UK market, this will likely have a negative impact on employment and trigger further redundancies.
However, investment values could increase as the UK, and the EU finalise new trading solutions, and the economy recovers from COVID-19-related damage.
- A disorderly Brexit could trigger a sharper economic contraction than expected and deliver shockwaves through financial markets, resulting in a collapse in business confidence and sales.
- Pound Sterling (GBP) is expected to become more volatile. The British pound to euro (GBP/EUR) exchange rate forecast to slump to the EUR 1.06 level in the event of a no-deal Brexit.
If you own an international business, fluctuating exchange rates will have a direct impact on your profit margins.
- New travel restrictions and reduced EU migration could negatively impact your workforce by reducing the availability of skilled workers.
Government migrant advisers have already warned that there will be a skills shortages in construction, academia, healthcare, veterinary and seasonal employment post-Brexit.
- The structure of VAT could change and undergo radical reform. Businesses who export and import goods or services from the EU will also be required to pay VAT at the border, which could increase costs and pose cash flow challenges.
- The UK’s departure from the EU could trigger a hard border, meaning exports between the two countries will go through customs checks, resulting in queues and long delays.
Aside from supply chains disruption, businesses could also face additional tariffs and administrative costs. According to the Financial Times, the HMRC has estimated British companies could spend an additional GBP 15BN a year on paperwork if the UK leaves the European Union without a Brexit deal.
If you operate an international business, reach out to your suppliers to ensure they are prepared for Brexit and open to exploring other solutions.
- Are your employees legally entitled to live, work and travel in the UK post-Brexit?
Suppose your workers are EU or EEA nationals and don’t have permanent residency status or indefinite leave to remain. In that case, they will need to apply to the EU Settlement Scheme to continue working in the UK.
It’s free to apply to the scheme and applications can be made online at GOV.UK; however, the deadline for applying is 30 June 2021.
From 1 January 2021, business owners considering employing EEA or EU national without settlement status will have to adhere to the same procedures used when hiring non-EU nationals. All workers must apply for the relevant work visa, and the business must apply for a Sponsorship Licence to support their application.
How will Brexit impact small and medium-sized businesses in the UK?
Arguably, small and medium-sized businesses (SMEs) have faced some of the toughest challenges from the fallout triggered by the coronavirus pandemic, and they must now navigate the threat of Brexit.
Although many have been able to stay afloat, having dealt with immediate threats, Brexit will likely be having an impact on business confidence and prompting SMEs to reflect on growth prospects heading into 2021.
SMEs will be exposed to the same risks as large and multinational corporations due to Brexit, and this has often been overlooked. According to the latest Business Distress Index survey from RealBusinessRescue.co.uk, 36,000 SMEs were in significant financial distress due to the impact of COVID-19 and the looming Brexit deadline.
However, small and medium-sized businesses planning for their future will be glad to know that there are numerous schemes available offering financial support and opening up new avenues for growth.
Government support schemes and aid
The British government has introduced several initiatives to provide support to SMEs navigating the pandemic and Brexit.
Export companies will have up to GBP 25 million access from five of Britain’s largest banks to support export costs and scale up business operations as the UK transitions to becoming a sovereign state.
To be eligible for financial support, at least 20% of annual turnover must have derived from UK export sales or 5% in the last three financial years.
The UK government is also offering a deferral on VAT payments and temporary reductions on VAT for hospitality and tourism firms up until the 2021-22 financial year, which will help to offset immediate concerns about increased costs post-Brexit.
Chancellor Rishi Sunak extended repayment loans and application deadlines on business loan schemes, with the maximum repayment period for the Bounce Bank Loan and the Coronavirus Business Interruption Loan now ten years, instead of six.
The Treasury unveiled additional resources for small businesses struggling to meet their tax liabilities due to financial distress as well as a new campaign to prepare businesses for the end of Brexit.
The campaign, dubbed “The UK’s new start: let’s get going” will provide firms with additional insight and advice on how to prepare for the end of the transition period.
Additional resources available to SMEs
Fintech giant, Market Finance, will make grants of up to GBP 5K available to small businesses in financial distress to help them “kickstart” their operations in 2021.
At the same time, the Enterprise Nation Brexit Advice Service (ENSAS), which is comprised of a network of small firms and advisors will offer advice to owners of SMEs and provide them with tools to help them prepare for Brexit.
The UK government is also believed to be introducing new state-backed guarantees to support SMEs in 2021. According to Whitehall figures, the new scheme could provide eligible businesses with financial support on up to 80% for loans worth up to GBP 10M.
How will Brexit affect the manufacturing industry?
The majority of Britain’s largest manufacturers have said they are prepared for business post-Brexit.
According to the latest Business in Britain report, of the 200 large manufacturers surveyed, 81% said that they had made the necessary preparations for their future outside the European Union.
However, 44% claimed that a no-deal Brexit would have severe repercussions on the profitability of their business.
With much still uncertain between the UK and the EU on Brexit, manufacturing bosses are having to prepare for both possible outcomes. However, that’s not to say a no-deal Brexit would be utterly catastrophic as this could open up new market opportunities and supply networks for manufacturing businesses to explore, with ample scope to build new relationships.
The British government has also promised to invest billions of pounds into technology and manufacturing infrastructure to attract new manufacturers and boost the industrial sector, to unleash the industry’s potential.
With new costs expected to be passed onto supply chains, manufacturing businesses need to understand the specific challenges facing their business to make profitable investments and gain a competitive edge post-Brexit.
Seek alternative suppliers if your current supply chain cannot adapt or provide the comfort factor you require or ensure that they are prepared for the potential ramifications Brexit could have on logistics and future costs.
Adopting new technologies could also prove advantageous as technology can offer excellent productivity and efficiency benefits.
Is your e-commerce business prepared for Brexit?
A no-deal Brexit will have profound consequences on the e-commerce sector, as this will trigger volatility in pound Sterling (GBP), cause significant disruption at the border with customs and raise tariffs on goods imported from the EU.
Business owners connected to the UK market should communicate with web designers and logistics and make the necessary adjustments to support their profit margins.
If you’re an e-commerce owner living overseas, ensure you can legally work and have your business registered in that country to prevent being subject to any fines.
Some e-commerce businesses have used the past year to establish logistic centres in the UK and the EU to mitigate disruption and delays. While this may seem expensive for SMEs, it could be more cost-effective in the long run.
Consider updating the shipping policy on your e-commerce website so that buyers know who will be responsible for paying for any customs duties and import tax as a lack of transparency could reduce your consumer base.
What impact will Brexit have on tech companies?
Technology businesses that transfer data between the UK and the EU could find that Britain isn’t regarded as a “safe third country” following the Brexit transition period.
Have you considered the risks and disruptions your business might face if you don’t have an adequacy agreement in place with your EU supplier?
Tech firms may be required to provide information on where data is stored and who can access it to gain access to data from the EU in the future.
Contractual forms may need to be completed and approved by the EU to ensure adequate protection of personal data. At the same time, those operating on a global scale may have to implement new rules or change corporate standards to be able to send and receive data to and from Europe.
If you own a technology business, ensure you are fully compliant with GDPR and review privacy policies before the UK completes its departure from the European Union.
Technology experts have pointed to the fact that the UK boasts five of the top 20 European cities for technology and that there were a large number of new start-ups during the start of the year, which is a promising sign for the industry beyond Brexit.
However, the end of visa-free travel to the EU has raised concerns about a skills shortage in the tech sector over the coming years.
If you need to employ international workers, make sure you have applied for a Sponsor Licence and that they have the relevant visa before entering the UK to prevent delays to their start date.
What implications will Brexit have on the travel and tourism sector?
Britons will be treated like other non-EU nationals post-Brexit, meaning the end of freedom of movement across the EU.
The British government is urging employers to apply for an immigration sponsor licence before the end of the transition period if they want to employee EU workers as this will give the employee time to apply for the EU Settlement Scheme.
The EU Settlement Scheme will give EU, EEA and Swiss nationals the right to reside in the UK post-Brexit and protect their immigration status after the Settlement Scheme concludes on 30 June 2021.
After this, EU, EEA and Swiss citizens will be required to obtain a visa to live and work in the UK. However, visa requirements are unlikely to apply to those on business trips as this falls under the scope of the UK’s permitted business pursuits.
However, employers might want to brief employees embarking on business trips on the new requirements that will apply to them and provide letters for a reason for the travel to prevent any disruption at immigration.
In some cases, a work permit may be required, so it’s essential that you research whether the reason for travel falls under the scope of activities permitted by officials.
