Over one third of small businesses to “reduce or stop” trading with EU

A new report from the Federation of Small Businesses (FSB) has found that more than one-third of SMEs are prepared to reduce or stop trading with the EU altogether, due to the differing regulatory environments, mounting red tape and compliance costs. 

This finding lays bare the cumulative toll that post-Brexit trading conditions have taken on Britain’s smallest firms. Unlike larger corporations, they can’t absorb compliance costs by spreading them across high trade volumes or by employing dedicated in-house specialists, and often lack the margins and the administrative capacity to navigate this regulatory maze. 

This unfortunate state of play is leading many small firms to conclude that the European market is simply no longer viable for them.

UK-EU trading: a bleak picture for small businesses

The FSB’s new report, Ticket to Trade: Making EU trade easier for SMEs, found that just one in ten UK small businesses sees an opportunity to grow in the EU, as opposed to more than one-third who are going to reduce or stop trading within the bloc. 

Just under half (45%) of the firms the FSB surveyed said that they were going to maintain their current trading levels in the EU. 

Overall, more 63% of businesses said they face “significant barriers” to trading in the EU.

Costs continue to pile up

Among the barriers making trading in the EU harder are “taking equipment overseas when travelling for work” (19%) and the differing regulatory environments enforced in British and European markets (34%).

85% of businesses importing and exporting goods say they’re facing issues, with problem areas including customs documentation (64%), physical inspections of goods (21%) and product marking and labelling rules (17%). 

More than a third of businesses say their compliance costs stack up to more than £5,000 per year.

“Small firms are not short of ambition, but they’re being worn down by a system that feels stacked against them”, explains FSB Policy Chair Tina McKenzie. “Many want to grow into EU markets, but don’t have time to be swallowed by paperwork, creeping costs and delays that put hard-won customer relationships at risk.

“The EU should be a natural market for our small firms as it’s so close and accessible. When it works, it opens doors, drives growth and helps businesses thrive. For some firms, those EU orders are what keep things going when it’s slow at home.”

Solutions on the table

The FSB has called for several urgent measures to ease the burden on UK businesses exporting to the EU. 

They include standardising regulatory requirements for products between the UK and the EU, which almost a third of businesses said would be beneficial, as well as a new UK-EU de minimis rule that would allow small packages to be imported into the EU without UK firms being hit with duties and fees. 

Other changes touted include export grants for small businesses looking to launch in new European markets, which would take care of at least some upfront costs, and creating a single digital customs system to cut down on the mountains of often repetitive paperwork small businesses are forced to fill in at present. 

The necessity of VAT middlemen –  locally established persons appointed by non-resident businesses to handle VAT obligations in the EU by acting as the official link with tax authorities – is also being called into question.