Brexit impact on taxes for small UK businesses
The government has made various arrangements across all policies and industries in the event of a no-deal Brexit, and this includes taxation. Changes to the taxation regime will most impact those small businesses trading goods, and the services industry will see fewer changes. However, there will be some changes to the likes of VAT, which will impact small businesses in the ways below
It has been suggested that state aid rules will no longer apply to the UK post-Brexit. This would mean that the government would have more control over the tax reliefs and incentives it can offer to businesses.
Small businesses will no longer be able to access the EU VAT refund system. This could result in administrative delays for SMEs, as well as impact cash flow. SMEs will still have access to the EU’s VAT number validation system, but UK VAT registrations will no longer exist there. Small businesses may be liable to pay VAT to the relevant authority in the country where you are providing the service. HMRC have said they are developing a separate service which can be used to validate UK VAT numbers. Moreover, the government has indicated that input VAT deduction rules could be changed post-Brexit for those UK business involved in supplying insurance and financial services.
Importing goods from the EU
In the event of a no-deal Brexit, goods imported from the EU will be subject to the same rules as non-EU imports are currently. Specifically, postponed accounting for all imports will be introduced. Effectively, VAT-registered businesses will account for import VAT on their return, instead of paying directly at the border.
Low Value Consignment Relief (LVCR)
This will be eradicated for all parcels entering the UK, regardless of destination. As a result, all goods coming into the UK sent from businesses abroad will be liable for UK VAT.
Any small business that relies on the Parent/Subsidiary Directive or Interest and Royalties Directive, which eradicates the requirement to withhold tax on payments to and from the UK should be aware that this will not apply in the case of a no-deal Brexit. Post-Brexit, any business with interest, royalty or dividend transactions between the EU and the UK will have to rely on the existence of individual tax treaties for relief. The UK already has these treaties in place with the EU27, and it is recommended that your business checks which countries it does dealings with, as the provisions in the treaties differ from country to country.
Brexit impact on intellectual property and contracting for small UK businesses
Much of intellectual property (IP) law is harmonised across the EU, and a vast majority of the legislation in the UK in this area is a direct result of EU regulations. Thereafter, small businesses which are IP owners should identify which of their rights are now likely to be affected and may need further application/registration in order to achieve maximum protection over that right. A no-deal Brexit will have huge implications on IP across the UK for SMEs, such as:
- Small businesses who have been working on filing IP applications in the UK must take note, as outlined in the government’s published technical notices on no-deal Brexit relating to trademarks. For all registered European Union trademarks (EUTMs), the Intellectual Property Office will create comparable UK trademarks.
- These comparable UK rights will have the same filing dates as recorded against the corresponding EUTM.
- They will be fully independent UK trademarks that can be challenged, assigned, licensed or renewed, separately from the original EUTM.
- When applying for a UK trademark, small businesses must currently provide an address in the UK when a right holder applies for a UK trademark or design at the UK Intellectual Property Office. Currently, any address in the EEA can be provided.
- The UK is a member of the Madrid System, an international trademark system. This system allows users to submit one application in one language, paying one set of fees, and results in protected trademarks in 113 territories, including the EU, if so required by the business.
Brexit impact on immigration and mobility for small UK businesses
Freedom of movement of both skilled and unskilled workers has proven a sticking point during Brexit negotiations, with the Prime Minister indicating that the UK’s departure from the EU will end this. Many SMEs in the UK depend on the ability of EU citizens to move freely between the Member States for business travel. Whilst travel for tourist purposes will still probably be relatively straightforward after Brexit, it might impact UK small businesses in the following ways:
- For employees at small businesses in the UK who need to travel for the EU for work, a work visa may be required.
- UK citizens must have a passport which is valid for at least six months if they are visiting the EU.
- If a small business employs EU citizens, they must apply for the EU Settlement Scheme to ensure they can still live in the UK post-June 2021. They will then receive settled or pre-settled status.
Brexit impact on Employment Law for small UK businesses
The UK has been instrumental in driving high standards of EU regulations regarding employment law and health and safety. Moreover, a vast amount of EU employment law had been brought directly onto the UK statute books, which will still be in force post-Brexit. The government has made it clear that it has no intention to change or reduce workers’ rights in the UK. However, we could see the following changes for UK small businesses:
- UK courts and tribunals would no longer refer cases to the European Court of Justice (ECJ) or be obliged to follow new decisions from the ECJ. It is not clear how they would deal with existing UK case law stemming from EU decisions.
- There could possibly be more thorough immigration checks required on employees from the EU.
- The Prime Minister has said that EU workers will continue to be able to live and work in the UK but has not clarified the finer details of this, for instance, what checks and requirements might be needed.
Brexit impact on social security for small UK businesses
As a member of the EU, the UK is currently part of the EU’s contribution system on sickness, benefits, and pensions. If there is a Brexit deal, there will be no immediate change to social security contributions for UK and EU citizens. However, if there is no deal, then social security contributions could change quite dramatically for EU citizens working for small businesses in the UK. If a small business employs EU workers in the UK, their employees may have to begin paying social security contributions to BOTH their country of origin in the EU and the UK, unless the UK signs up to the EU system as a non-EU country, like Switzerland.
Brexit impact on stockpiling for small UK businesses
With the potential of a no-deal Brexit still looming, the government is stockpiling food and medicines ahead of possible delays at the ports. Manufacturing companies activated no deal contingency plans at the end of 2018. Manufacturers of everything from wings and wheels to chemicals have been stockpiling raw materials, with stockpiling at its highest for a G7 country since 2007. Small businesses involved with businesses who are stockpiling will be impacted in the following ways:
- UK SMEs should review their supply chains and analyse whether suppliers will have issues shipping raw materials, in the event of delays at the border.
- Likewise, small businesses in the UK who have customers in the EU should review whether there could be delays in getting their goods to their clients.
- Warehouse and storage space should be looked into, in case the stockpiling of goods is necessary.
- Investing in warehouses in the EU for extra stock may need to be considered.
Brexit impact on client relocation for small UK businesses
The UK is used as the European headquarters for many companies from America, Asia and the EU itself. During a recent survey of British and German companies based in the UK, almost a third said that they would move operations from outside the UK or permanently leave in the event of a no-deal Brexit. However, it’s not all bad news, as it has been estimated that almost 3,000 jobs have been created by financial services companies across the EU due to Brexit, with 500 of these jobs being located in London. Check out below how business relocation due to Brexit will affect small businesses:
- Given the number of companies closing their doors and moving jobs out of the UK, check if your clients intend to stay in the UK.
- If not, review whether perhaps to refocus your client base on UK companies, or those with an intention to stay in the UK post-Brexit.
- There could be an opportunity to expand your services and/or products if your clients are heavily impacted by Brexit, and it’s an area where you feel you have expertise.