Brexit and SMEs in the UK: Are They Getting Along?

The primal panic around Brexit has dispelled, but 94% of businesses are still challenged to come up with effective future scenarios. The reason for that is lack of information about a post-brexit business landscape. The uncertainty of the Brexit effect on entrepreneurship is the major issue that prevents companies from directing their efforts towards growth.

The UK will finally leave the EU on 29 March 2019, so if you still don’t have an emergency plan, it’s better to work on it from today. Thus, let’s answer the burning question: are British SMEs and Brexit getting along or not?

What Businesses Will be Affected in the First Instance?

While GDPR was a constraint primarily for the online businesses, Brexit is a threat for the land-based ones. According to experts, the industries that will be hit the hardest are automotive, pharmaceutical, financial, and airlines.

58% of cars produced in the UK are exported to the EU. Cumbersome customs emerged after Brexit might make this process more complicated than before, creating more obstacles for automotive businesses.

The pharmaceutical sector faces uncertainty on drug trade regulations. Currently, the UK adheres to centralized regulations accepted by The European Medicines Agency. After Brexit, pharmaceutical businesses will have to adopt the UK drug authorisation process.

Airlines need to change their routes in order to comply with EU laws, while the British banks ceased to be full-fledged participants of the bloc’s markets. There is only a hope for equivalence to get the basic access to them for now.

The businesses that will suffer the least are online service-oriented enterprises. They won’t encounter shipping cost increase and logistics issues due to the absence of physical goods. So if you want to start a new business right now, consider building a company of this kind.

Online start-ups are also known for relatively low entry barriers, as the launch of the online service became a no-brainer within the last years. You even don’t need to invest money in the time-consuming website development, since you may create a website without involving any specialists. All you need is to choose the best website builder for small business and establish your company online in a matter of weeks.

Tax Changes

The decrease of business cost-efficiency is primarily caused by taxation reforms. As of indirect tax, Brexit affects Customs Duty and VAT, for which the UK will need to establish its own regulatory instruments. More than 100,000 of British businesses will have to pay VAT upfront on goods imported from the EU. The consequences of Brexit for British retailers are an increased direct outflow and inability to recoup the expenses from import.

When it comes to direct taxes, they will be less affected, being regulated primarily by national authorities instead of EU treaties.

Potential Opportunities Brexit Provides

Aside from the substantial challenges mentioned above, Brexit still opens up some opportunities for small business owners. First of them is the rise of inward investment in the UK SMEs caused by the weak pound. Private equity firms and venture capitalists are more eager to fund British companies as long as the pound becomes cheaper. For example, Isher Company is going to invest £20m in the acquisition of the regional contact centers across the UK.

The plunge of the pound exchange rate has one more side effect: export facilitation. British goods and services drop in price, what makes them more attractive for the international importers. According to PayPal data, foreign buyers spent 10% more on British products in the period that followed the referendum.

The last change deals with the UK employment issue. Surveys indicate that 47% of skilled workers with EU citizenship who currently work in the UK are about to leave after Brexit. Some might say that it signifies a talent crisis for the UK, and they are right with regard to the short-term consequences. In the long run, the talent gap in the workforce will be sealed by engaging national talents and, therefore, providing high-value job opportunities to the locals.

Needless to say, the majority of findings of the post-brexit economy are merely assumptions. The uncertainty still persists in the majority of business areas, so we will likely finish that picture only after the Brexit process will come to its end.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.