The Impact of Brexit on Small Businesses

The Impact of Brexit on Small Businesses

The uncertainty surrounding Brexit has been rocking the boat for business owners and their workers across most sectors. The new deadline for Brexit is rapidly approaching, without a deal in place. Brexit is going to cause some problems regardless, but a no-deal Brexit could be truly chaotic. Whatever happens, it is important for businesses to make appropriate preparations for Brexit. Small to medium enterprises may be hit the hardest if they don’t.

How do small businesses feel about Brexit?

The FSB (Federation of Small Businesses) carried out a survey of over 1,000 small companies to assess their attitudes to Brexit. Two-fifths of the small business owners believed that Brexit would have a negative impact on their operations. Within this group of small businesses, two-thirds believed that it is not possible to prepare for a no-deal Brexit in time. One-fifth of them have not made any preparations at all, because they do not know what they are meant to be doing due to the lack of guidance from the government. Of the small businesses who have been taking steps to prepare, just under one third have been stockpiling. Just over one third are experiencing reductions in profitability. The average cost of Brexit preparations is around £2,000. It goes up to £3,000 for small businesses who import and export goods within the EU. The FSB has been calling on the UK government to provide vouchers for up to £3,000 to cover the Brexit preparation costs for small businesses.

How will Brexit affect small businesses?

Most experts predict that a no-deal Brexit will cause massive disruption and damage the economy. The UK leaving the EU will mean changes to:

  • imports and exports of goods
  • employment of EU citizens in the UK
  • transport and logistics
  • product safety regulations
  • industrial standards (including emissions)
  • personal data transfers between the UK and EU
  • recognition of qualifications and licenses

All of this will affect businesses of all sizes. Blockages and delays at ports will affect businesses who import and export, and immigration rules will affect businesses who employ workers from EU countries. Prices are likely to increase across many sectors, which will be costly for consumers as well.

Trade & Tariffs

The unpredictability of the outcome of a Brexit deal or no-deal is affecting the stability of exchange rates. The value of the pound is extremely volatile and depends on the latest announcements about Brexit from the EU or UK leaders.  In addition, crashing out of the EU without a deal would heavily impact trade for all businesses who import and export goods from the EU. Administrative costs would increase due to the customs paperwork that would now be required, and this would also add a time delay to transport chains. This could result in damage and losses for perishable products. It could also result in a shortage of fresh food and medical supplies for UK consumers and patients. Any temporary no-deal tariffs which may relieve some of the financial pressure will only last for one year after Brexit, which does not allow any business to plan for a long-term future with confidence.

Data & GDPR

The General Data Protection Regulation which governs the transfer of data within the EU is going to be adopted into UK law. This means that if a small business is already GDPR compliant, then you should be prepared. However, this implementation into national law will not happen immediately. In the event of a no-deal Brexit, any UK business which trades or stores data in the EU will face consequences unless they make alternative legal arrangements.

Workforce

There is likely to be a skills shortage in several sectors, especially science and engineering, due to changes in immigration laws for EU citizens. The UK will no longer be a desirable destination for these workers, so the labour force in the UK will suffer. Industries like farming, which rely on a majority of EU immigrants to work as pickers and packers, are already experiencing profit losses due to problems with hiring enough workers to harvest their produce. On top of this issue, general employee productivity is experiencing a slump. The Office for National Statistics found that economic output per hour of work is the lowest it has been since 2014 due to Brexit uncertainty.

Will Brexit affect UK-only businesses with UK-only customers?

Even if you are a UK-based business selling to UK-based customers, it is likely that Brexit will impact your business. If you source supplies from within the EU, or if your supplies are stored in the EU before dispatch, it could mean delays and increased costs after Brexit. You may need to find more local suppliers instead. If this is not possible, you will have to factor delays and higher costs into your business procedures and plans. Almost half of UK businesses employ EU citizens, so if they leave the UK then this could negatively impact your workforce. If you continue to employ them, then there will be additional paperwork involved. Things such as travel insurance and fuel availability can affect your business, especially if you have a commercial vehicle or fleet. Trademark protection may also change.

How can small businesses prepare for Brexit?

Businesses should have been preparing for Brexit already, at least 9 months in advance, to ensure that they are ready. If the UK leaves the EU without a deal later this month, it will be difficult for businesses to adapt if they aren’t prepared. There will be a transition period following Brexit of up to a year, during which businesses will be adapting according to the legal changes and their logistical consequences. It is important to perform an assessment as soon as possible. Answer these questions to determine necessary changes.

Employment and Services

  • Do you employ any EU citizens in the UK?
  • Do you employ any UK citizens in the EU?
  • Do you rely on a service or specialist in the EU?
  • Do your staff need to travel to EU countries?
  • Do you have any obligations to EU trade unions?
  • Do EU standards govern your operations?

Import/Export and Logistics

  • Do you import goods from the EU or export goods to the EU?
  • Do you temporarily store goods in the EU (even if the products are manufactured outside of the EU)?
  • Do you work with other agencies or use licence schemes?

Taxes

  • Are you VAT registered?
  • Do you hold money in financial institutions in the EU?
  • Do you rely on funding from the EU or EU-backed grants?

Manufacturing

  • Do you own patents, trademarks, or registered copyrights?
  • Do you manufacture products which must comply with EU standards?

Information

  • Do you host any data in an EU country? (this includes cloud storage)
  • Do you hold data about EU-based citizens on servers in the UK?
  • Do you send goods or documents to the EU via courier or postal services?
  • Do your services rely on people holding relevant qualifications?

Where can small businesses get advice about Brexit?

If you do not know what to do in order to prepare your small business for Brexit, there are organisations which can provide the correct guidance. It is possible to get advice on Brexit from Citizens Advice. HMRC has also created an online tool for business owners to find out what might be changing and what they need to do to comply with new legal standards. The Federation of Small Businesses also offers a Brexit Pack of guidance for small businesses.

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