So the map of Europe has been redrawn, and with it the rules of commerce across Europe. Ever since a Brexit was confirmed early Friday morning, businesses have been busy trying to figure out what this means, and importantly how they are going to adapt and succeed over the coming months and years.
The leave campaign has argued that businesses will thrive now that the UK is free from the red tape, beauracracy and control of Brussels. Those on the side of remain have countered that considering 44% of Britain’s exports go to the EU, putting up trade barriers will be counterproductive. The truth is that at this stage, no one really seems to know.
Until the exact terms of the UK’s exit has been negotiated with the EU, there can only be speculation, and with trade agreements expected to take years to finalise, for many it will be business as usual in the short-term. Nothing is likely to change any time soon, and only time will tell how this momentous decision will impact businesses.
However businesses can take the necessary due diligence and planning to ensure that any potential turbulence can be managed, while exploiting the bigger opportunities in the years to come.
Some of the key areas to consider for your business could include:
Relocating your business
According to a survey by the Institute of Directors (IoD) who questioned more than 1,000 business leaders, one in five respondents were considering moving some of their operations outside of the UK as a result of a Brexit vote.
As a member of the EU, companies based in the UK were free to sell their goods to customers anywhere else in the EU without those customers having to pay additional taxes to import those goods.
Depending on the new UK-EU deal, Brussels could seek to impose a variety of tariffs on UK exports, ultimately making it less attractive for EU businesses to source goods from UK companies. As a result, businesses that would like to retain access to Europe’s single market are now considering moving their operations to alternative European locations.
Several banks and have also stated that Brexit will force them to rethink their attachment to the UK. Faced with the prospect of losing their EU “passports” that essentially enables them to sell services to the rest of the EU, banks and financial organisation’s within The City will in all likelihood need to join the single market.
- In February HSBC stated that it would need to move 1,000 jobs to Paris.
- US bank JP Morgan said Brexit could mean the UK losing up to 4,000 of its workforce.
- Morgan Stanley also said it would relocate as many as 1000 UK workers if Britain was to leave the EU
- Deutsche bank, which has around 12,000 employees in London, said they plan to move a large portion.
The recent vote could see multinational banks shifting a significant number of jobs to the financial centres of Paris, Frankfurt, Dublin and Amsterdam.
Exports
Manufacturers have also expressed their concerns about losing access to the single market. According to the Office of National Statistic (ONS) 44.6% of Britain’s exports are destined for the European Union, giving manufacturers access to over 500 million customers. The concern is that the introduction of trade barriers and the imposition of tariffs are likely to have an effect on demand.
However the recent fall in the value of the pound does come with a few benefits. A weaker pound will ultimately make exports cheaper and businesses could receive a temporary boost. However it’s expected that the price of Sterling will improve as things settle down.
IP Protection & Trademarks
One area that hasn’t had much coverage is how the Brexit will effect companies with Intellectual Property rights.
Through its membership with the EU, the UK benefited from the EU Trade Mark system (EUTM). Businesses were able to obtain coverage across the EU via one central application process. This helped to streamline administration and reduced the costs that would be involved when individually filing national trademarks in all EU member states.
In the short-term, these IP protections still apply and nothing will change overnight, however the benefits of the EUTM systems could be lost during the exit negotiations. Unless a successful negotiation allowed the UK to continue to participate in this scheme, there is a risk that UK businesses would no longer be able to obtain protection for their trademarks in the EUTM countries. UK based businesses may have to re-register those rights with the relevant national registry offices across Europe.
While companies within the EU but located outside of the UK would still be eligible for EUTM registrations, the coverage would not include the UK.
To achieve this they may need to apply for a national (or Madrid Protocol) UK trademark at an additional cost and administration requirements.
VAT
The European Commissions standard rate of 15% VAT will cease to be relevant post exit. The general consensus is that VAT is likely to remain the same (for the time being at least) considering the existing UK rate of 20% is currently competitive within Europe.
The UK however could lose access to the MOSS VAT “one-stop shop” that was introduced to remove the accounting and administrative burden of the VAT regulations.
A non-EU one-stop-shop already exists for companies located outside of Europe, and this service could be extended to the UK as part of the negotiations.
Distance Selling
Small online retailers who sold their product to consumers in other EU member states benefited from a process called “distance selling”. Designed to reduce administrative procedures, a business only has to register for VAT as a non-resident trader when B2C sales exceeded the thresholds of €35,000 or €100,000. These thresholds varied depending on the regulations of each individual country within the European Union.
These regulations may no longer apply following Brexit, meaning that the sales of B2C goods to EU non-business customers could become VAT-free exports.
Ultimately businesses – to a certain extent – can expect “business as usual” in the short term, and SMEs in particular due to their resilience and flexibility could be well position to take advantage of emerging opportunities in different markets. The coming months will be the time to seek advice and plan for the potential scenarios to ensure your business can emerge from the transition with the best possible chance of success.