On December 31st 2020, the transition period officially ended, finalising the separation of the UK and EU. Over the last several months, businesses have struggled to adapt, find their feet and understand how Brexit will impact small businesses.
Businesses of all sizes feel the impact with sole traders and small companies with suppliers and customers in the EU feeling it the hardest. Brexit is expected to cause a 6.7% loss in GDP growth, accounting for a £130 billion loss over the next 15 years.
Research shows that 50% of UK business owners recognised the EU as a critical market. So, leaving the EU will undoubtedly present challenges, and small businesses will need to find new growth opportunities.
Keep reading to find out:
- How Brexit is expected to affect the UK economy
- How will small businesses be impacted by Brexit
- How you can help clients weather the financial storm
How will Brexit impact the UK economy?
The UK has always had a close relationship with EU nations. So much so that 46% of UK exports are sent to EU countries. While the UK-EU Free Trade Agreement (FTA) alleviates some potential damage, retailer decisions, increased tax and custom difficulties still make trade difficult.
For example, several EU retailers, including bicycle part firm Dutch Bike Bits, no longer deliver to the UK due to the increased bureaucracy and additional tax liabilities. Smaller UK firms have also paused trade to the EU as they wait for better clarification on trade laws and resulting fees.
Research from the British Chambers of Commerce shows that 41% of companies have experienced decreased sales in the first quarter of the year due to Brexit. Retail and wholesale companies experienced the worst impact, with 60% reporting a drop in exports.
While it’s still relatively early days, it’s essential for small businesses to be aware of the potential impacts and for their accountants to guide them through any turbulence.
How will small businesses be impacted by Brexit?
Brexit has far-reaching implications for businesses of all sizes in the UK. While small businesses needing to export to the EU will face the greatest difficulties, it’ll also impact UK businesses operating locally.
Sending goods to the EU has become much more difficult. Small businesses that now want to import or export goods to and from the EU will need to deal with various complications, including VAT payments, VAT refund claims, customs and excise duties for items outside the trade agreement and much more.
While the UK and EU have agreed to support efficient cross-border trade in documentary clearance and transparency, small businesses will still need to navigate red tape and bureaucracy. Companies will also need a UK EORI number (Economic Operator Registration and Identification) to import or export goods from the UK.
Brexit has also changed how small businesses charge and process VAT.
Previously, UK companies didn’t need to apply VAT to EU customers, but now EU customers need to play by the same rules as non-EU members. Companies receiving goods from outside the UK must also pay VAT.
Accountants will need to help small businesses owners understand the new rules around VAT, whether they need to register and pay VAT to individual member states, and how to take advantage of the postponed accounting scheme for imports.
Brexit may also impact the State Aid that small businesses are eligible for. State aid rules may no longer apply to the UK post-Brexit, giving the UK government more control over tax reliefs and incentives. As a result, businesses could get more support, but the EU could withdraw EU-backed grants.
Intellectual property (IP) law is unified across EU member states, and these regulations heavily influence UK IP laws. Small business owners may need to investigate whether any of their current IP licenses will be impacted and may need to submit further applications to protect their intellectual property.
Large brands moving to the EU
Many businesses have either decided or been encouraged to move abroad to avoid the lengthy paperwork, red tape and bureaucracy of importing and exporting to the EU. Over 440 financial institutions have moved some UK business to Europe. With large brands moving their headquarters to Europe, this could negatively impact small businesses.
Contractors and self-employed individuals who work for these larger companies may also need to secure visas or work permits to continue working abroad.
Data protection rules may also change due to Brexit. Companies that receive personal data from contacts in the EU or EEA, including names, delivery details, IP addresses, or HR data, might need to change data protection policies and practices to stay compliant.
How accountants can help small businesses with Brexit
Accountants play an essential role in helping small businesses understand the impact of Brexit and make a plan to minimise any financial risks. This may involve providing guidance on new regulations, helping them process paperwork and navigate the increased complexity of EU-UK trade.
Whether your client trades with the EU or not, Brexit is expected to negatively impact the UK economy and requires careful financial planning to make sure small businesses can survive and thrive.
How Countingup can help your practice and your clients
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Start saving your practice time on manual admin and help your clients keep organised records with Countingup’s free accounting software, built specifically to help you manage your self-employed and sole trader clients. Our software is MTD-compatible and full of features for accountants to review and manage client accounts efficiently, with direct access to their real-time organised data. Find out more here.