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BREXIT

The impact of Brexit on Businesses

The UK has formally left the EU and there are a number of changes that have come into effect as a result thereof. It is undeniable that all businesses have been directly or indirectly affected by Brexit, either due to economic impact or shortage of skilled workers. However, it is evident that some industries are and will continue to be affected more than the others.

Even though it could take years before we can fully learn the true costs and benefits of Brexit in the meantime businesses need to know the risks and take steps to ensure that they stand out from the crowd. The legislative changes brought by Brexit for businesses mainly stem from border restrictions. Some of the issues faced by businesses are:​

1. Supply chain 

The new rules regarding the tariffs, customs duties and other limitations to trade have substantial consequences on how manufacturers obtain materials, manufacture products and access marketplaces. Taking into account the high number of small and medium businesses in the supply chain, the effects could be considerable if the supplier base is not prepared to adjust to new trading rules. These implications affect businesses that move goods to and from EU countries, which include, but not limited to, food and drink, clothing and textiles, financial services. As of April 2021, more than 440 financial service firms moved their activities and work to the EU as a result of Brexit.​

Notably, the construction industry is also one of the most vulnerable industries in the UK as it is facing difficulties with the supply chain. The cost of material and labour has risen in the UK due to the fact that the material is largely sourced from EU countries. ​

Manufacturing businesses in the UK are also facing uncertainties in terms of accessing overseas markets as most of the UK exported and imported goods are from and to the EU countries. While most businesses are required to comply with two different regulatory systems in the UK and EU states if trading in both, there has been an exception regarding medicinal products. ​

In addition, pass-porting allowed financial firms to sell their goods and services to all EU states with no limit pre-Brexit. The UK’s Financial Conduct Authority (FCA) has recently introduced a temporary permissions regime (TPR) which allows firms in the EEA to operate with pass-porting rights in the UK. It is noted that Brexit will continue to interrupt the efficiency of the UK supply chain.

2. Tariffs

Tariffs are one of the biggest issues as a result of Brexit. Uncertainties arise as to whether goods sold by retailers into EU countries are subject to tariffs. Goods will attract tariffs where more than 40% of its “pre-finished value” is not of the UK and EU origin, for instance from South Africa. Businesses need to do extra paperwork and declarations when exporting and importing goods, which result in commercial delays if they approach ports not prepared. The trade agreement between the UK and EU restricted any tariffs and quotas from being introduced as this could have made trading more costly, but it cannot be said that everything remains as it was pre-Brexit. ​

In January 2021, the UK introduced a new rule that states that VAT must be collected at a point of sale instead of a point of import. Therefore, businesses exporting goods to the UK are required to register for UK VAT and give account to HMRC if the sale value is less than £135.

3. Workforce

Many UK staffing and consultancy companies were supplying contract workers into EU countries without any restrictions, however, the Trade and Cooperation Agreement (TCA) now allows EU member states to limit remote recruitment operations, and it is possible that many EU countries will start requiring anyone who places a worker with an employer to have a local establishment and licence (as is the case in Switzerland). 

Whether a contractor is working through an umbrella company or through a personal services company, such a contractor cannot operate in the UK unless an employer (not an umbrella) sponsors them. Most recruitment businesses hiring contractors from EU states must apply for sponsorship licenses as well as pay an immigration skills fee. ​

Consultants and workers who have some form of settled status and have the relevant documentation in place to be used by any EU worker already a resident in the UK or UK worker resident in the EU is permitted to continue to enjoy the benefits of residence. However, each country has its specific way of procuring proof of lawful residence, for the UK it is the EU Settlement Scheme and individuals have up until 30 June 2021 to make such applications for their proof of residence. In the UK, this is either pre-settled status (valid for five years) or settled status (permanent), and it is issued electronically. It is important to note that if an individual performing contract work wishes to stay for less than 90 days in a 180 day period when, for example, attending business meetings, he can do so without obtaining a visa or work permit.

The UK talent pool derives from the EU, therefore, recruiters and employers need to ensure that their workforce is compliant with the new rules. New travel restrictions will also have a negative impact on the availability of skilled workers. Considering the restrictions on labour movement from Europe into the UK this will also cause a skill shortage of IT experts in the UK. This could lead to:​

(a) an increased focus on the automation process. As the talent pool in the UK is expected to get smaller, businesses are expected to invest in an automation process, which in turn reduces the amount of talent they need to employ in the future on site.​

(b) increased wages for skilled IT professionals.​​

4. Data transfer

Until the end of June 2021 there are no restrictions on transferring personal data between the UK and the EU on condition that the current privacy laws are complied with. 

The Brexit effect

It is currently difficult to determine the full extent of Brexit's effects on different sectors in the UK, however, it is evident that the most of the negative effects have been due to travelling restrictions. This has weakened the talent pool and has created difficulties in finding skilled professionals. Although, some have predicted that Brexit will in the long run bring opportunities for most businesses including independent contractors as a result of companies requiring access to certain skills on a more flexible basis. Also, if businesses adapt to developing trends and take advantage of the changes in the market it is still possible for them to benefit from Brexit. 

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