From taxation and VAT to intellectual property and through to hiring freelancers, contractors, and workers, Brexit has major implications that EU companies need to consider.
Brexit may also present opportunities, especially for freelancers and for European companies to hire freelancers to meet upcoming skills gaps. The key for any business is to understand the impact Brexit could have as we all continue to monitor how the split evolves.
Brexit impact on taxes for EU companies
One significant impact for EU organisations that supply, or import goods to the UK, could be VAT. A no-deal Brexit will mean that many rules applied by the UK to non-EU imports will begin to apply to imports from EU countries. Exports out of the UK to Europe will also be affected, as per the Deloitte report which details indirect and direct tax implications:
“For indirect tax, there is likely to be a significant impact on Customs Duty and VAT, where the UK would need its own taxation systems. Transactions to/from other EU states would become imports and exports with potential impacts on systems and cash flow. Other indirect taxes would be largely unaffected.”
Amongst expected likely modifications to VAT rules are that post-Brexit, both EU and non-EU importers to the UK will need to account for import VAT but will be able to do the same on their returns, rather than paying VAT at the border. Customs declarations and other duties will still apply.
The UK has, however, committed to remaining part of the EU Customs Union until December 2020. After this point, a single EU-UK customer territory could be established, although will be subject to Brexit and post-Brexit negotiations.
Another likely change is that Low-Value Consignment Relief (LVCR) is abolished for all parcels entering the UK. Parcels sent to the UK from any overseas business will be subject to UK VAT.
Any vehicles imported to the UK from the EU will also be subject to import VAT, but the reliefs experienced currently by non-EU vehicle importers may be applied.
Certain specific taxation implications may also change, such as intra-EU distance sales rules and UK businesses will not qualify for the EU VAT MOSS regime pertaining to certain electronic services. VAT refund provisions and how they are administered may also be affected.
The UK government has said it’s likely to continue to closely mirror EU VAT rules, at least in the short-term.
Outside of VAT, many other taxes in the UK do not follow EU influence so will remain largely unaffected by Brexit. Cross-border corporate transactions are partly governed by EU law so Brexit may see some changes in this respect, as the UK negotiates new treaties with European countries to replace EU regulation. Certain business tax reliefs, like those on R&D, may also be affected.
As both taxation and VAT are complex and the application varies from business to business, EU companies are encouraged to understand specifically how Brexit applies to them and take any corresponding and required professional advice.
Brexit impact on intellectual property and contracting for EU companies
The UK Department for Business, Energy & Industrial Strategy has prepared extensive guidelines in regard to intellectual property rights post-Brexit.
Even a no-deal Brexit should still mean that registered EU trademarks and registered community designs are protected and enforceable in the UK. The UK will offer this continuation of intellectual property protection by “providing an equivalent trademark or design registered in the UK” to EU businesses. This will come into force on March 29th, or the point the UK leaves the EU.
EU companies with pending applications may need to consider refiling a new application for UK protection or continuing with an EU application. Unregistered Community Designs which exist when the UK leaves the EU will be protected and enforceable in the UK for the “remaining period of the protection of the right.”
Further details on intellectual property, trademarks, patents, and copyrights, are comprehensively detailed on the UK government website.
For small businesses who contract around Europe, they will lose the comfort of industry regulations being set at a European level and may need to obtain accreditations or qualifications specific to the country they contract within.
Freelancers who work remotely with EU clients will be less impacted than those who need to physically attend a place of work.
Eventually, EU citizens wishing to work in the UK, or UK citizens wishing to work in Europe, may face the same rules as citizens of non-EU countries like USA, India or China.
The impact of Brexit for EU businesses hiring contractors will depend on where they are situated. Companies will need to work closely with current employees to ensure they are taking the appropriate steps to continue working legally. For freelance workers, much of the responsibility will sit with the freelancer, but hiring and HR managers will need to ensure they are employing a legal workforce.
Post-Brexit, EU companies needing to hire staff may need to change their strategies to attract an appropriate workforce as the pool of labour shrinks. Companies based in the UK will have a far smaller pool of easily accessible labour. Companies in wider Europe may have less access to UK workers free to work across Europe.
In the UK, the Association of Independent Professionals and the Self-Employed (IPSE) has considered how Brexit will affect freelancers and the self-employed. IPSE says that UK-based freelancers are concerned that EU businesses will exit or look away from the UK, reducing their income.
However, the mobility of a self-employed and freelance workforce also presents an opportunity for EU companies to access critical talent through the hiring of freelancers.
“As the UK plots its path through Brexit, the government should recognise the central role the self-employed will play in taking us through this turbulent period. This means taking steps to ensure Britain is a country that works for freelancers – particularly through its tax and welfare system, and easily accessible training options.”
Contractor UK details a number of scenarios for freelancers depending on how Brexit develops.
Brexit impact on immigration and mobility for EU companies
After December 2020, the impact of Brexit on immigration and mobility for European companies is likely to be felt more widely. At this time the freedom of movement which has allowed individuals to move, relocate, and work, across Europe will end.
Though the UK government has maintained its stance to support the status of EU nationals, many may still leave. After December 2020, EU nationals wanting to live and work in the UK could be treated similarly to non-EU citizens now.
For European companies employing contractors, things aren’t set to change immediately. But, access to a greater pool of potential workers has been one of the resounding benefits of EU membership.
As the UK leaves the EU on March 29th, the free movement of workers appears set to continue until December 2020. EU workers in the UK before Brexit occurs will be able to apply for “settled status” after five years of residence. This will give them indefinite leave to remain in the UK. The EU Settlement Scheme also contains options for EU citizens with less than five years of residence in the UK, provisions for families and provisions for other situations.
UK workers in Europe will likely need to register as residents where they live and the rules and deadlines for paperwork will change from country to country.
The BBC has reported that there are around 1.3 million UK citizens living and working in wider Europe. There are around 3.2 million non-UK, but European citizens living in the UK.
Further implications will depend on whether a Brexit deal is agreed, or if there is a “no-deal” Brexit. A no-deal Brexit may mean freelancers who travel around Europe are more restricted, needing to register and remain in one country or apply for work or travel visas in each country they visit.
It could become more difficult for EU citizens to relocate to the UK. The same is true for UK citizens who will, post-Brexit, be subject to immigration laws and procedures if they are looking to move to an EU country. This will restrict the pool of labour for EU organisations. As per the implications for the hiring and retention of freelancers, EU companies will need to employ new strategies to manage, retain, and hire workers.
The UK government published a white paper at the end of 2018 with proposed measures that could be put in play until 2025 and allow low-skilled migrants to come to the UK and work for up to a year. The paper also proposed to remove a current cap on the number of skilled workers entering the UK from the EU and other countries and to remove the need for EU visitors to have visas. If passed via a government bill, the plans would take effect from 2021.
Brexit impact on Employment Law for EU companies
There will be additional considerations for EU companies now when looking to hire a permanent employee or freelancer from the UK. The same will be the case for UK businesses considering hiring a worker from the EU.
For companies outside of the UK, EU employment legislation will continue to apply. The results of Brexit and subsequent UK policies will determine if the UK maintains equivalent employment legislation post-Brexit.
That said, through progressive legislation, the UK has already adopted many of the EU employment laws and other laws are specific to the UK already. Any change to UK employment legislation would need parliamentary approval and likely political acceptance. As the UK already has many desirable employment policies, such as those pertaining to maternity and paternity rights, immediate or far-reaching change is unlikely.
Brexit impact on social security for EU companies
Brexit may have important implications for social security contributions for mobile EU workers. Any changes may have to be managed by EU companies or workers.
The UK is part of a wider EU social security contributions system. A UK citizen working in the EU is currently only required to pay the social security contributions of the country in which they are a resident. The same is true for other EU citizens who work in the UK. As per Osborne Clarke:
“Following Brexit, that system will no longer apply and workers may be liable to double social security contributions in both the UK and the other member state, unless the UK signs up to the EU system as a non-member state, as Switzerland did recently.”
PwC sets out a number of potential situations depending on whether a Brexit deal is made, or a no-deal Brexit ensues. With “no-deal”, bilateral agreements may apply. If a deal is reached, there may be a transition period which applies to social security. The long term impact on social security is less clear and appears to depend on pre and post Brexit agreements.
Brexit impact on relocation for EU companies
Brexit has already seen a number of EU companies and global businesses exit the UK and move their operations to remain EU-member states. Many do not want to face the challenge of upcoming differences between UK and EU legislation and the potential effect this could have on how they do business across the EU.
A survey by Germany’s Bertelsmann Foundation discovered that one in three British and German companies could leave the UK after Brexit. EY’s Financial Services Brexit Tracker found that over a third of UK financial services firms either have already confirmed relocation to Europe or is considering relocation. Omar Ali of EY says:
“Firms are no longer merely talking about their plans. Across Europe, the wheels are in motion on relocation and hiring strategies as firms make their ability to serve clients from day one of Brexit their number one priority.”
EU companies currently situated in the UK, and UK companies which serve a wider Europe, are clearly concerned about Brexit’s impact. Relocation is now a real consideration for many of these companies, in order to deal with the transition and potentially avoid any detrimental effect. This relocation poses a danger to the UK economy and for full-time workers in the UK.
EU organisations and European workers, including freelancers, will see the change due to Brexit. However, an already growing freelance talent pool across the UK and Europe creates an opportunity for EU companies to successfully meet talent gaps. For freelancers, this opportunity translates into new clients who need flexible, skilled, and professional services.