How to prepare your small business for Brexit (without the help of a crystal ball)
Just what the @£&! is going to happen after Brexit? We’re not going to go all Mystic Meg on you and pretend we know. But with the government’s Withdrawal Bill well on its way to becoming law, we’re all but certain to leave on 31 January. We look at the current state of play, the likely scenarios that could pan out, and what you can do to prepare your business — deal or no deal.
- In this article
- I’ve tuned out — what’s the latest with Brexit?
- What happens if they don’t agree a deal?
- How will Brexit affect imports and exports?
- How will Brexit impact my supply chain?
- What will the effect be on my customers?
- What will happen about tax and VAT?
- I have employees from the EU, how will they be affected?
- Where else can I find advice?
I’ve tuned out — what’s the latest with Brexit?
Here’s how things currently stand: on 9 January, MPs gave their final backing to the UK government’s Withdrawal Agreement Bill, which now passes to the House of Lords. Barring any unforeseen curveballs, the bill will now become law and the UK will be out of the European Union on 31 January.
The Withdrawal Bill allows for an 11-month transition period during which the UK will stay aligned with current EU rules while a new trading agreement is worked out. Boris Johnson has stated he’s committed to getting a trade deal by 31 December and will not allow the transition period to be extended beyond that date. The EU has made less confident noises, but for now the focus will be on getting that deal done.
What happens if they don’t agree a deal?
That’s where that crystal ball would come in handy. If we haven’t agreed a deal by 31 December 2020, the UK will revert to trading under World Trading Organization (WTO) rules. This is the basic arrangement for countries who don’t have a specific trading agreement in place. Neither side wants this, as it could result in import duties being imposed on goods that are currently tariff-free, and create obstacles to trading, like additional border checks and custom controls.
However, there may be a third outcome. There’ve been rumblings about partial agreements on specific, key trading sectors before a full and comprehensive deal is arrived at. So to add to the confusion, as well as ‘deal’ or ‘no deal’, ‘some deal’ might also be on the cards.
With so much uncertainty still around, we won’t pretend it’s easy to plan. But let’s look at the areas Brexit will particularly affect, and what practical things, if any, you can do to prepare your business.
How will Brexit affect imports and exports?
Currently trade between the UK and EU is tariff-free. As we’re part of the Customs Union, imports and exports can cross borders freely.
This arrangement will continue until December 2020 while the government negotiates a trading agreement that ensures UK goods aren’t subject to tariffs and other trade barriers after the transition period ends. Close alignment of UK regulatory standards with the EU would be necessary for such a deal, but it’s not certain that the government is seeking this. It’s another space to watch when negotiations start in earnest from February 2020.
If there’s no deal, there’ll potentially be significant upheaval, at least in the short term. All exports will face EU tariffs and customs checks. You’ll need to prove your goods meet EU standards, involving extra paperwork. With duty and taxes being imposed on traded goods, imports will become more expensive and as businesses pass these costs on to customers, prices generally will go up, with less spare cash all round.
imports will become more expensive and as businesses pass these costs on to customers, prices generally will go up, with less spare cash all round. On the flip side, no deal could result in a lighter regulatory burden for small businesses, making your products more financially attractive in markets outside the EU. But as things stand, it’s still an unlikely scenario.
What to do now: register for an EORI number
The government is urging businesses that import or export goods to the EU to register for an Economic Operators Registration and Identification (EORI) number. Even if we leave with a deal, it’s likely the UK will be outside the Customs Union and Single Market, which makes this registration necessary in order to trade with the EU.
How will Brexit impact my supply chain?
There’s a good chance your business depends on EU suppliers in some way. The EU is the UK’s largest trading partner, accounting for approximately half our imports and exports of goods. A no deal Brexit would be highly disruptive for all the reasons mentioned above, potentially causing delayed supplies, higher costs and fluctuating customer demand. Here’s hoping it won’t come to that — but regardless, now could be an opportunity to review your supply chain and improve its resilience.
What to do now: map your supply chain
Review and map out your supply chain to build up a complete picture of your suppliers and see where any risks might lie, for example if lead times were to be extended. Get in touch with key suppliers to see if you can align your planning. Assess the feasibility of relying on local suppliers, if need be. Review your inventory: do you have enough stock to see you through a period of disruption? Do your suppliers? It’s worth checking now, so you don’t get caught out later.
What will the effect be on my customers?
In a no-deal scenario, your customers are likely to feel the hit too. Higher tariffs, delays and currency fluctuations could leave them with less money to spend, affecting demand for your goods and services — particularly if you sell luxury products. On the plus side, if you make your goods within the UK, Brexit could be good for business as you might find your products compare favourably in price with goods from the EU.
What to do now: review your pricing
Review your product portfolio: how flexible and robust would it be in the face of these challenges? Consider how you might expand your line to include more budget-friendly products, or introduce deals and discounts.
What will happen about tax and VAT?
VAT is charged on most goods and services within the UK and EU. The current UK rate of 20% is aligned with EU requirements, which state it mustn’t be below 15%. VAT is unlikely to be going anywhere, as it brings in too much revenue for the government. But there will be changes to how it’s applied to transactions between the UK and EU.
In the event of no-deal, the government has said it will keep VAT procedures as close as possible to what they are now to provide continuity. However, there will inevitably be some changes. The government will introduce postponed accounting, which means instead of paying import VAT when goods arrive at the border, you’ll be able to account for it. And current distance selling rules will disappear, under which businesses charge UK VAT on sales to the EU up to a threshold. Businesses will be able to zero-rate sales to EU customers, but these will be classed as non EU exports and subject to import VAT within the member state.
What to do now: stay updated
The government doesn’t expect no-deal to happen and has stated that VAT procedures will be largely unchanged. However, if you can steel yourself to do it, it’s as well to familiarise yourself with the ins and outs of what might happen under a no-deal scenario. For more guidance, see the Gov UK website
I have employees from the EU, how will they be affected?
You may have EU nationals on your team. Maybe you’re from the EU yourself. With nearly 3 million EU citizens living in the UK, plenty of business owners are concerned about their future rights to live and work here.
As the situation stands, EU citizens currently living in the UK have the right to stay. The no deal uncertainty applies to our future trading arrangements, and doesn’t affect people’s settlement rights. However, EEA nationals must still apply for settled or pre-settled status under the EU settlement scheme (which one you get largely depends on how long you’ve lived here). The official deadline is 30 June 2021, although if we leave without a deal the deadline is 31 December 2020.
What to do now: support employees applying for settled status
If you have employees from the EU in your team, they may be feeling uncertain or anxious about the future. They could even be looking to work elsewhere. While the details of Brexit are being hammered out it’s difficult to be specific about anything, but talk to them, reassure them and keep them updated on any developments you know about.
If they haven’t already, encourage them to apply for settlement status as soon as possible — it’s free and you can do it online.Note that Bexit brings to an end free movement within the EU and in future it may be harder to recruit people from member states. Now could be a good time to review your workforce. Identify the skills you need now and for the future. Do you need to upskill your team? Are there other talent pools you can look into recruiting from, locally or beyond the EU? Do you need to strengthen your branding and recruitment advertising, to make your business more attractive to the right candidates? Amid the uncertainty, there is at least the opportunity to reassess the way you run your business and potentially make it more robust.
Where else can I find advice?
- The Gov UK website has a pool of advice on preparing for Brexit, for all industry sectors.
- The Federation of Small Businesses also offers Brexit guidance for small businesses.
- The British Chambers of Commerce has a Brexit hub and a business Brexit checklist looking at key areas businesses need to consider in preparing for Brexit
About the author
Suzanne is a freelance writer at ANNA Money. She started her career as a business accounts analyst at Barclays Bank before moving into digital marketing. She’s written for many major financial brands, including Barclaycard, NatWest and Metro Bank, and has even been a hand model in a NatWest in-store ad.Read more of Suzanne's writing