With an ever-changing political landscape, and uncertainty surrounding Brexit, it can seem difficult to plan ahead. Following the defeat of Theresa May’s Brexit deal, the outlook is arguably even more uncertain, and many believe a ‘no-deal’ Brexit is a real possibility.
Whatever happens, UK small businesses and entrepreneurs must push forward and prepare as best they can. Cutting through the media coverage to the facts is difficult, but in this blog, I’m going to lay out the current scenario, and give advice on what small businesses can do.
Advice for UK small businesses and entrepreneurs
My role as a financial expert and tried-and-tested investor is to give entrepreneurs, small business owners and career-makers information designed to help in tangible ways. Brexit has slowed investment in the UK. There is no doubt that people are being more cautious as they wait to see what will happen.
According to the Financial Times, the UK economy has shrunk by approximately 1.5% following the Referendum. Other reports suggest that the decrease is around 2.5%. Whichever you have more faith in, it’s evident that Brexit has caused some economic uncertainty, and this continues to have an effect on business in the UK.
Let’s look at some of the issues surrounding Brexit that directly affect UK small businesses and entrepreneurs, as well as the wider business landscape. I am using the Prime Minister’s proposed deal as the basis for analysis, as it is the only plan that has been made public.
The Irish border question
One of the most controversial parts of Theresa May’s plan involves the border with Ireland. Currently, Northern Ireland based SMEs can trade services and goods between Britain and the Republic of Ireland with few restrictions. This is because both Ireland and the UK are in the EU customs union and single market.
However, if the UK leaves the EU in December 2020, as the plan states, then this would change.
Stats from the Government in Northern Ireland show that its businesses exported more than £3.4 billion worth of services and products to the Republic of Ireland in 2016. A high percentage of this was carried out by SMEs.
In a no-deal Brexit scenario, industries that rely on cross-border supply chains would be seriously impacted. Both the UK and EU have repeatedly stated that they want to avoid this and agreed a ‘backstop’. You’ve probably heard this mentioned a lot recently in the media. It’s essentially an insurance policy, meaning that Northern Ireland would align with the EUs custom rules and standards if a brand-new trade deal is not secured by the end of the transition period.
The backstop is deeply concerning for many. Tina McKenzie, Northern Ireland policy chair for the Federation of Small Businesses, says: “The backstop is a significant step back from a cliff edge which would result in a chaotic no deal Brexit that would be deeply damaging and dangerous for our small firms.
EU citizens rights in the UK
Another aspect of Brexit that concerns many people is how EU citizens living in the UK will be affected. The deal on the table says that they will keep their right to study and work in the UK. This is good news for businesses in industries that rely on people from Europe, such as construction. Approximately 12% of the UK’s construction workers, which number 2.1 million, come from outside of the UK, according to the Office of National Statistics.
Government stats show that there has been a significant decline in EU migration since the vote of 2016. The number of EU citizens choosing to move to the UK is at its lowest in six years, and down 28% year-on-year. Remaining positive in the face of these statistics is important for UK small businesses. In the long-term it’s likely that Brexit will create new opportunities, and while industries that have historically relied on European workers will no longer have the same supply, there will be the chance to encourage the UK’s young people to join these industries.
What do they mean by ‘transition’ period?
The agreement explains how the UK won’t suddenly be independent of EU customs and rules when we wake up on 29 March 2019. Rather, there will be a transitional period of 21 months to allow the time needed to sort out trade agreements and other loose ends.
If, by July 2020, there is still no trade deal between the EU and UK, then both sides could agree to extend the transition period. This would limit the disruption to supply chains and avoid the disaster that has been predicted in the face of a no-deal Brexit.
While it’s by no means certain that this deal will not go ahead, it is looking increasingly unlikely. This means we must address the question of a no deal scenario and how this would affect UK small businesses and entrepreneurs.
The governor of the Bank of England Mark Carney says that UK SMEs would struggle to cope in the event of a no deal, as more than 50% have no contingency plan in place. The FSB estimates that just one in seven small businesses is planning for the worst-case scenario of a no deal. The chairman, Mike Cherry, says: “Put simply, a chaotic no-deal Brexit will damage jobs, cut growth and hurt the economy. With time ticking ever faster, our small businesses need support and advice to start planning.”
What can small businesses do?
It’s difficult to offer concrete advice right now, as Brexit is still up in the air. However, entrepreneurs and small business owners must do their best with what is known.
There is some advice from HM Revenue & Customs for small businesses on what to do in the event of a no-deal Brexit. They say they will contact small business owners before spring 2019 to give more detailed instructions.
The steps small business owners could need to take if the UK leaves with no deal are roughly the same as those applying to businesses that trade with countries outside the EU now. Information on how businesses trade with countries outside of Europe can be found here. This includes information on excise, customs and VAT.
Whatever the outcome of Brexit is, small businesses and entrepreneurs throughout the UK must remain positive, diligent and aware of how it may affect them.