How would a no-deal Brexit affect small business prospects? Adam Prince, vice president of product management at Sage, considers the possible impact on importers and exporters.
The British government has begun to publish technical notices looking at how UK businesses and citizens can prepare for a no-deal Brexit outcome.
In that event, the UK would revert to “third country” status, meaning that the UK would be treated the same as countries that lack any free trade agreements for tax, customs, and the movement of goods and people within the EU.
Britain’s importers and exporters face an unprecedented increase in red tape, likely to disproportionately affect small and medium-sized businesses the most. New tariff costs, increased administrative burden and new legal reporting requirements will result in extra complexity whilst at the same time hitting productivity for these businesses.
Import and export costs for all businesses are likely to rise after Brexit, with a need to put new administrative measures in place, carry out additional formalities and potentially redefine the nature of your business.
This will particularly impact smaller businesses that might feel the increased administrative costs more acutely, especially if these businesses have never previously traded outside the EU. Smaller businesses with fewer administrative resources might need to start their preparations earlier too.
Sage research shows businesses already spend an average of 120 working days per year on administrative tasks, accounting for around 5% of the total manpower for the average Small & Medium Sized Business. Further administrative burdens will only add to the UK’s productivity crisis.
An increase in productivity of 5.6% in the UK could lead to an increase in GDP of at least £33.9bn per year, valuable resource that can be unlocked by smarter working practise and policies for Small and Medium Sized Businesses.
In a no-deal Brexit scenario, the UK will no longer enjoy the free trade with EU countries that it does now, with businesses facing VAT and import duties as well as increased administrative requirements.
As a result, importing, exporting and trading with countries inside the EU will become similar to trading with countries outside the EU, such as the US.
In other words, those companies that already import or export to non-EU countries will be able to largely transfer their existing processes to cover all countries outside the UK.
Critically, those businesses that have only ever imported or exported between EU countries and will face wholly new administrative burdens that will require significant preparation before March 2019, because to import or export goods across the UK/EU border, businesses will need to register for an Economic Operator Registration and Identification (EORI) number.
Not only this, for businesses that want to continue to move goods across the UK/EU border and do not want to manage the increased administrative burden themselves, the UK government has suggested engaging an agent such as a customs broker, freight forwarder or logistics provider, adding to the cost of understanding this extra bureaucracy.
A successful Brexit process for any business will be one in which solid cash flow and productivity are as little impacted as possible.
While it’s true that there is little specific preparation that can be undertaken until negotiations are complete and the Withdrawal Agreement is published later this year. It is essential that every business understands the basics early and has access to sound advice on its import and export position, regardless of the eventual outcome with Brexit.
Adam Prince is vice president of product management at Sage
Read more about the impact of Brexit on small UK businesses:
- VAT is too valuable to simply disappear under a no-deal Brexit
- Why aren’t small business owners planning for a “chaotic” no-deal Brexit?
- What we can expect from HMRC before Brexit
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