Actions for businesses in a post-Brexit world
The UK has left the EU with both sides managing to agree a last-minute post-Brexit trade deal. What now for the region’s businesses? The Business Magazine’s Tim Wickham asked an accountant, a lawyer, a banker, a recruiter and a manufacturer for their advice, and what they see as the biggest post-Brexit threats and opportunities.
Hands up who read all 1,246 pages of the new Free Trade Agreement over the Christmas break? It may be a weighty undertaking, but a good understanding of the rules of new relationships with European trading partners is essential if UK businesses are to take full advantage of the new arrangements, urged David Brookes, tax partner, and Glyn Woodhouse, indirect tax partner, at accountants BDO.
Focus on your priorities and understand the rules
BDO thinks the priority for businesses should be on preserving customer relationships. “We’re advising clients to consider their position in detail and, in particular, the impact on their customers. Our view is that businesses that will benefit in the new post-Brexit world will be those able to most clearly demonstrate to customers across the EU that they can deliver product as efficiently as competitors within the EU’s boundaries,” said Brookes and Woodhouse.
Getting to grips with the trade deal details is a steep learning curve for everyone, said Aaron Nelson, senior associate at law firm BDB Pitmans, who expects greater clarity will emerge from the Government.
“Businesses need to understand what our new relationship with Europe means in practice. It’s probably fair to say that the Government’s guidance to date was often less than clear in identifying what businesses needed to prepare for. But we expect that to change now the deal is done and has to be implemented,” he said.
Nelson added: “Businesses should keep a close eye on the guidance now being issued by the Government and the relevant regulatory bodies – whether in terms of tax, accounting, employment rights, procurement or public contracts – in order to keep on top of the changes.”
Vehicle transmission specialist and major exporter Xtrac welcomed trading without tariffs and the certainty provided by a trade deal for goods. “In the medium-term, businesses will adapt to the new requirements,” observed Stephen Lane, chief financial officer at Thatcham-based Xtrac.
“This may be helped by a weaker pound for those businesses that are large net exporters, but there are likely to be short-term difficulties to overcome.”
For well-prepared companies, January 1 was a date they had been waiting for. “With an agreement in place, businesses can now begin to execute their long-term plans and strategies, as they continue to combat the economic effects of the pandemic,” said Simon Smith, global trade and receivables finance director for HSBC UK in the south.
He added: “While there are risks to some businesses, we have seen that many firms in the region have robust plans in place to cope with these changes, as the transition period came to an end.”
Getting to grips with the small print of the trade agreement is particularly important for employers looking to attract and retain talented people, as and when they need them. “Now is the time to do some strategic workforce planning, so that you can anticipate potential labour shortages and identify how you’ll plug those gaps. You may also need to go the extra mile to make your company more attractive as an employer in 2021,” recommended Gavin Dent, regional director at Roc Search.
“With the right planning and support, your business can continue to access the talent it needs, for 2021 and beyond.”
Trade challenges
While BDO welcomed the removal of customs duties on goods originating and passing between the UK and the EU, the firm said some red flags remain. “We have warned that it has not changed the position on VAT or altered the need for formal import and export documentation. It also only removes customs duties on goods that originate in the UK or the EU,” said Brookes and Woodhouse.
The firm pointed out that more complex supply chains, which involve products (or products containing components) from outside the EU, can still generate a duty cost on goods moving between the UK and the EU. Businesses will also need to be able to prove the place or places where the goods originated.
“There will inevitably need to be some planning around the processes and procedures required to comply with the new rules. However, now that the UK has completed the formalities of leaving the EU, it is hoped that businesses can focus on complying with the rules, while creating business structures and supply chains for the medium and long term,” said Brookes and Woodhouse.
Xtrac recognised that some significant changes will be required from businesses. “As around 50% of our products are exported to the EU, we have been busy working to ensure that we have sufficiently flexible plans in place to address the additional administration necessary for cross-border trade with the EU to continue as seamlessly as possible, together with supporting our EU-citizen UK-employed staff with their applications for the EU Settlement Scheme,” said Lane.
“Having such processes and logistics in place has been essential in reducing the weight of bureaucracy, so that our commercial trading activities remain as unaffected as possible,” he added.
Lane’s advice, particularly for SMEs, is to engage with logistics experts. “To ensure your supply chains remain unblocked and that your personnel are not significantly diverted from running your business.”
Gavin DentThe region’s business could take advantage as supply chains are restructured, believes HSBC. “Some may benefit from those bigger firms who are looking to build resilience by diversifying their suppliers,” said Smith.
Free movement
Free movement is now a thing of the past, noted Roc Search. “Companies that previously recruited from the EU may have to look elsewhere to meet their needs. Even if you don’t recruit from the EU, you may find yourself having to compete harder for talent, as companies that might ordinarily recruit from further afield turn their attention back to the UK labour pool,” thought Dent.
Extra admin costs
Xtrac believed the main post-Brexit threats were likely to arise from additional administrative costs, bureaucracy and the wider impact on the economy from leaving the EU and how that filtered through to businesses. BDB Pitmans pointed to the added burden on businesses of understanding not only the UK’s and EU’s new rules, but also the regulations relevant in individual EU member states.
New immigration rules
If you plan to recruit from abroad, be aware of the new immigration rules, advised Roc Search. “The new points-based system will treat EU/non-EU citizens equally. This means anyone (except Irish citizens) coming to work in the UK from January 1 2021 will need to apply for permission in advance, and will be assessed according to specific requirements,” Dent explained.
These candidates will need a job offer from a Home Office-licensed sponsor. “This means if you intend to recruit overseas candidates, your company must apply to become a licensed sponsor. You’ll have to prove your business is eligible, pay an application fee and wait up to eight weeks for the application to be assessed – all of which will need to be factored into your hiring plans,” continued Dent.
VAT confusion
BDO highlighted media reports of large UK retailers incurring significant brand damage when customers have been unable to take delivery of goods without paying additional VAT, and often, an administration fee.
Data privacy
According to BDB Pitmans, data handling could be another challenge in the post-Brexit world. Nelson said: “The EU is still to make a unilateral decision on the adequacy of the UK’s data handling in order to secure flows of digital information between the UK and EU. While that is expected, it is also vital.”
Business as normal?
Looking at the broad sweep of Brexit, the question of what constitutes ‘business as usual’ or the ‘new normal’ is a moot point.
For Nelson, aside from the technical challenge of so much regulatory change is the fact that a number of benefits the UK enjoyed as an EU member state have now gone. He wondered what normal would look like without free movement of people between the UK and EU; membership of the European Single Market that provides freedom of goods and services; and membership of the Customs Union, which removes customs and many other border checks.
“The new arrangements ameliorate some of the worst consequences of this – imposition and tariffs and quotas in respect of goods – but they don’t amount to ‘business as usual’,” he said.
Lane thought there would eventually be a ‘new normal’ for most businesses. He said: “Although some businesses may take a while to adapt to the UK leaving the EU there may, over time, be a move to a ‘new normal’ whereby increased access to non-EU markets becomes an opportunity that they are able to exploit to their advantage.”
Taking a broader outlook
There are certainly going to be opportunities for the region’s businesses as we head towards prime minister Boris Johnson’s much-heralded “sunlit uplands” after Brexit and with the coronavirus pandemic under control. BDB Pitmans and HSBC believe many of these opportunities will probably lie beyond the EU’s borders.
Nelson is looking to the new trade and economic partnership agreements that the UK is negotiating with the rest of the world. “While most of these simply ‘roll over’ the benefits the UK had as an EU member state, some – notably that with Japan – go further, with improved access for financial services, certain kinds of food and drink, and the creative industries,” he said.
The Japan trade deal also contains a strong commitment from the country to support the UK joining the Trans-Pacific Partnership (TPP), which will open up further markets. “Domestically, I’d suggest that businesses may find the UK Government more willing to take proactive steps to subsidise or encourage business growth, now that it is no longer subject to the EU state aid rules,” Nelson added, albeit with a word of caution: “The Brexit trade deal also contains provisions preventing ‘distortive’ subsidies. The Government’s proposals for new freeports are a good example of this.”
Priorities in other global markets are likely to focus across the Atlantic, thought Smith. “The UK Government will continue its work to negotiate free trade agreements with markets outside the EU that are more advantageous than they were when the UK was an EU member, such as the ongoing discussion between the UK and the US, which could provide an economic boost in the future.”
To sum up, the advice from this group of Brexit-watchers is that a mix of pragmatism, preparedness and adaptability will be key for business success from here on.
