Brexit survival guide for start-ups and small businesses

What on earth is happening? When is it happening? What will be the Brexit impact on business? God knows. But it pays to be ready...

It’s been six months since we published our Brexit survival guide, then with the intention of helping businesses prepare for the original departure date of March 31.

Updating it to reflect the near daily revelations of the news cycle has been a challenge from the start, and the curtains don’t look set to close on this preposterous pantomime anytime soon…

Few could have forseen how intractable this Gordian knot would prove; indeed, it looks set to be the undoing of several prime ministers.

But it’s small businesses that are bearing the brunt of this uncertainty, which is making it difficult to put contingency measures in place.

That’s why, even though I’m sure we’ve all reached saturation point, it’s vital that small businesses don’t get lax about Brexit preparations.

We’ve updated our Brexit survival guide to reflect the government’s latest advice, and sourced advice and insight from experts and small businesses. Because even though the outcome is uncertain, there are still many steps you can, and should, be taking.

What's going on?

According to a recent survey by the Federation of Small Businesses, even though 39% of the UK’s small businesses believe a No Deal scenario will be damaging, just 21% have taken steps to mitigate the potential impact, and 63% don’t think they are able to prepare.

For those businesses that have prepared, the average cost has come in at around £2,000, rising to £3,000 for smaller businesses that import and export.

The next big event to look out for is the EU summit on the 17th, when Boris Johnson will have a chance to try and clinch a new deal that actually stands a chance of getting through the commons.

The government’s latest plan to deal with the issue of the Irish backstop is to conduct customs checks on the island of Ireland. This would see Northern Ireland in a different relationship with the EU to the rest of the UK. Johnson will submit this proposal to Brussels after the Conservstive party conference.

But what’s likely to happen?

Since the introduction of the Benn Act in September, the likelihood of a No Deal scenario has decreased significantly. The Benn Act requires the government to ask the EU for an extension of the Article 50 negotiating period to January 2020 if a deal isn’t agreed by 19 October.

We’ve checked in with Oddschecker, an online betting odds comparison site, to determine the likelihood of the current possible outcomes.

Possibility of a second EU referendum:

  • No (before 2020) 1/33
  • Yes (before 2020) 12/1

Article 50 to be revoked:

  • No 4/11
  • Yes 9/4

Possibility of a No Deal Brexit:

  • No 1/5
  • Yes 4/1

(These odds are correct at time of writing – October 2019)


Brexit timeline so far (since March 31)

Here are the key dates in the Brexit calendar since the original departure date passed.

  • 10 April 2019 – UK and EU 27 agree to extend Article 50
  • 7 May 2019 – Government confirms UK will take part in European Parliament Elections
  • 23 May 2019 – The UK takes part in the European Parliament elections
  • 24 May 2019 – Theresa May announces she will resign on 7 June
  • 26 May 2019 – Brexit Party wins most seats in European Parliament Elections
  • 23 July 2019 – Boris Johnson wins Conservative party leadership
  • 28 August 2019 – Johnson gets Queen’s approval to prorogue parliament for five weeks
  • 4 September 2019 – MPs take control of commons business and back bill requiring Johnson to ask the EU for an extension if he can’t secure a deal by 19 October
  • 9 September 2019 – Parliament is prorogued until 14 October
  • 24 September 2019 – Suspension of parliament ruled unlawful by the Supreme Court
  • 17 October 2019 – EU summit
  • 19 October 2019 – Deadline for Johnson to secure deal before asking for extension
  • 31 October 2019 – Current date that UK will leave the EU

Workforce and recruitment

As a small business, talent is one of your most valuable resources. And the impact of Brexit on retaining and attracting EU nationals has been a huge concern for many.

So, what’s going on?

Current workforce:

In the short term, everything is fine…

Under current law, employees and their families who have been UK residents for five years or more by 31 December 2020 will be able to apply for UK Settled Status. This grants them the same rights as British citizens, as well as the right to remain after Brexit.

If they do not have 5 years’ continuous residence when they apply, they’ll be eligible for pre-settled status. They must have started living in the UK by 31 December 2020 (or by 12 April 2019 if the UK leaves the EU without a deal).

You can then apply to change this to settled status once you’ve got 5 years’ continuous residence.

The EU Settlement Scheme will open fully by 30 March 2019 and the deadline for applying will be 30 June 2021. In the event of a no-deal, the deadline would be 31 December 2020.

They will also still be protected by existing employment regulations.

Robert Bates, employment expert at Jordans Solicitors, says that workers in the UK will continue to be entitled to the rights they have under existing UK law. “This includes those laws that originate from EU law, such as the working time regulations, family leave entitlements and legislation to prevent discrimination.”

Actions: Ensure any EU nationals in your workforce are aware of what steps they need to take to apply for Settled Status. If your business is heavily reliant on EU nationals, think about ways to boost staff retention. Find out more about applying for Settled Status on Gov.uk.

Recruitment:

In August, home secretary Priti Patel revealed plans to end freedom of movement on day one of Brexit. However, lawyers hired by the home office forced the government to scrap this proposed ‘Immigration Bill’.

So, for the time being, the status of this pillar of the single market looks uncertain, but if freedom of movement does end, it could make it much harder to secure talent from the EU.

And with the UK already facing a skills shortage, especially for tech positions, businesses should get hiring or make plans to mitigate the impact of a more competitive recruitment environment.

But what does that mean in practice? Make your company an attractive place to work. Have a think about what you offer employees that differentiates your business from rivals. And shout about it!

The government has also announced a European Temporary Leave to Remain (Euro TLR) scheme for EU/EEA nationals arriving after Brexit in a no-deal scenario. This allows them to live, work, and study in the UK for up to 36 months.

Applications for the scheme will only open in a No-Deal scenario. The deadline will be 31 December 2020.

Actions: Define a clear policy for employing overseas workers, and for recruiting essential tech talent. Make your business an attractive place to work and show off why it is.


International trade and movement of goods

Undoubtedly, businesses that rely on imports and exports stand to lose the most from a bad Brexit.

UK exporters to the EU may be required to make customs declarations, with custom checks at borders potentially causing major delays. Because of this, you may want to discuss this scenario with international clients, and implement contingency plans in your supply chain.

Likewise, new tariffs could be introduced that affect pricing and supply of goods, and cause confusion over who is responsible for shouldering the burden of rising costs… You could switch to a UK supplier to lessen the impact and uncertainty of this outcome.

It may also be necessary to stockpile goods – if you have the space, or means to access more storage space. Perishable goods obviously aren’t suitable for long-term storage.

Even if the UK and EU agree a zero-tariff trade agreement with the EU, UK businesses will have to prove their product is at least 50% locally sourced.

David Miller, customs & AEO consultant and co-founder of The Customs People, urges businesses to start using Transitional Simplified Procedures (TSP). It’s free and allows goods to pass through customs quickly, then complete more detailed paperwork afterwards.

“I urge any business that is importing or exporting goods to the EU to consider this measure, alongside speaking to their suppliers about their own preparations, and considering steps such as Authorised Economic Operator (AEO) status.

“These will all stand businesses in good stead, regardless of the outcome of negotiations – if a deal is made it just means you are well prepared once the transition period ends.”

The government has not yet clarified exactly what happens immediately after businesses make the TSP application, but HMRC will respond to all applicants within 15 days to confirm the next steps.

Cato Syversen, CEO of global intelligence firm Creditsafe, comments:

“Although a no-deal Brexit on October 31 is now unlikely, SMEs should still prepare for the most extreme changes in trading processes. For instance, applying for an EORI number in the event of a sudden exit from the European Union is an advisable course of action.

“This identification number is required for businesses outside the EU wishing to lodge a customs declaration or an Entry and/or Exit Summary Declaration. You can apply for this online and receive it instantly or at least within five working days.

“Moreover, as we still do not know the terms of the UK’s eventual exit from the European Union and its impact on the movement of goods and services across the border, small businesses should look into hiring a customs agent to streamline the process as much as possible when the UK does leave.

“Navigating the customs processes can be extremely complicated, and a good customs agent can ensure that all necessary taxes are paid and that every rule is followed properly so that goods can be imported and exported without unnecessary delay.

“Although many entrepreneurs and SMEs will be tempted to deal with the new rules independently to save money in the short-term, this approach can quickly become a false economy when the upfront cost of specialist software and the financial cost of simple mistakes are taken into account.

“These times of change are also a stark reminder that business leaders should utilise all the information and data at their disposal when it comes to making informed decisions.

“At a time when markets are likely to be volatile, taking the time to fully vet the financials of any potential business partners you decide to trade with has never been more paramount.”

Actions: Conduct a thorough audit of your supply chain to identify any potential problem areas. Explore alternative plans and UK suppliers. You can register for TSP here. Get an EORI number and look into hiring a customs agent.

Finance, payments & currency

Access to finance

There are numerous potential impacts on access to capital: exchange rate volatility, reduced investor and consumer confidence, cash flow issues.

The UK will also no longer be subject to EU Withholding Tax treaties. This is deducted from interest earned by EU residents on their investments made in another country, by the state in which the investment is held. Though there may be additional tax considerations and implications for transfer pricing.

In March, Barclays announced a £14.7bn lending fund for small and medium-sized enterprises to help them “through turbulent times as Brexit looms”. You can find out more about the fund and how to apply here.

Piers Linney, former Dragons’ Den investor and a non executive director of the government-owned British Business Bank, comments: “Research by the Scale Up Institute has highlighted that UK’s scale-ups already face challenges such as a growing skills shortage, the need to develop leadership skills, as well as access to finance and appropriate infrastructure.

“Scale-ups are the engines of growth in developed economies with the potential to add billions of pounds and create hundreds of thousands of new jobs in the UK. Last year saw a 15% increase in scale ups in the UK. Limiting the free movement of labour and talent across the EU limits the size of the talent pool and the diversity of thought required for success in global markets.”

John Atkinson Head of Commercial Business at Hitachi Capital:

“Deal or no deal, Brexit is a good opportunity to make sure your business is in the best shape possible as we head towards this period of economic uncertainty.”

“We advise many small businesses to make sure their finances are in good shape and would make this the top priority. Small business owners should look to focus on cutting costs, improving cash flow and getting better finance deals.

“We would also advise that businesses review their funding solutions and look at cashflow finance as a credible solution for boosting cashflow.

“It can definitely be viewed as a huge opportunity for many small businesses. For businesses already operating in the EU, they can look to expand their offering to new markets. Research has shown that this is already happening with many small businesses.

“To support this expansion, businesses should look to invest in new equipment and/or technology to support their proposition and hire staff to help them deliver this to their customer base. To help SMEs expand into new markets it really is important they have the right funding solution to support this growth.”

Actions: Assess your cashflow and capital requirements for the near future. Your financial services provider may be able to help you. Check if any payments of interest, royalties, or dividends may have withholding tax applied.

Payments & currency

Ecommerce and digital agency Visualsoft says many UK retailers are offering the option to pay in international currency, with 81% now giving the option pay in non-sterling alternatives – especially Euro and USD. The research also found that uptake of innovative payment methods such as Amazon pay and retail finance has seen a significant increase.

Dale Higginbottom, head of CRO at Visualsoft, says: “These figures suggest proactivity in the lead-up to Brexit and adoption of new payment trends… Offering a wide range of options is an important way for retailers to maximise their sales potential.”

Sarah Webb, President of UK and Europe at international payments company OFX, comments

“The UK business clients we work with at OFX are particularly concerned about current uncertainty and the impact a no-deal outcome could have on the pound, and speak to us daily about what this could mean for their international trading strategies.

“Importers are likely to be most exposed. Any swings in the value of the pound could have a serious effect on their supply chains and profit margins, as the cost of overseas goods becomes increasingly unpredictable.

“We recommend that businesses take steps as soon as possible to put a currency strategy together, which will help manage risk whilst protecting their profits from any currency fallout. Forward contracts, which lock future payments into today’s exchange rate, are a particularly powerful risk management tool, as they ensure businesses are shielded from volatility for up to 24 months.

“If a business locks in rates for 70% of all transactions, it can still benefit from any positive exchange rate movements that happen in the meantime. It’s important to have a flexible strategy in place not only to take advantage of beneficial market shifts, but also to protect your bottom line from currency exposure.

“With the recent Supreme Court decision that Boris Johnson’s prorogation of Parliament was unlawful, it looks like the prospect of a no-deal Brexit is receding – an outcome both businesses and markets would welcome.

“However, the opposition remains unwilling to call a vote of no confidence and the Prime Minister is maintaining his refusal to ask for a Brexit extension, so we’re still no closer to a negotiated deal. This places even more importance on the EU Summit on October 17th, which could be the last opportunity for Boris Johnson to reach a deal with the EU. The currency markets will be watching closely.”

Actions: Explore new payment options and the option to pay in alternative currencies. It could help you mitigate any post-Brexit financial hit by increasing sales. Put a currency strategy in place as soon as possible to mitigate any risk.


GDPR and other data issues

The government has confirmed that GDPR is here to stay regardless of the outcome of Brexit. Maybe that’s good news…

Although it’s caused a lot of aggro for legal departments, and slashed email databases, it’s also left them much healthier. Your marketing efforts are actually going to people who want to hear from you, resulting in much better open and click-through rates.

Jonathan Plummer, general manager of Electronic Manufacturing Solutions, points out that “GDPR offers a framework for building trust and being more transparent. It doesn’t stop companies working with personal data. It just allows them to redefine their relationships with customers, employees and suppliers.

“As a result, manufacturers which work to gain the proper consent and demonstrate they are using the data properly will be rewarded with customers that are willing to consent to their data being used. Enabling companies to continually improve and personalise the services they deliver.”

Matt Lock, Technical Director at cybersecurity company Varonis:

“Amongst the many scenarios we need to prepare for, there’s a GDPR equivalent to a ‘no-deal’ Brexit for data that will likely have repercussions for UK businesses. When the UK leaves the EU, it becomes a “third-country” under the GDPR rules. That means no personal data can be transferred to the UK. The result of this is IT chaos and heavy fines for companies that send data to the UK.

“However, if the EU Commission decides the UK’s data security rules are “adequate”, then data can be transferred freely.  Not surprisingly, the EU Commission has not yet handed down a decision. The EU has already declared, most notably, that Japan, the US, and Switzerland have adequate security and privacy laws.

“There’s a ray of hope since the UK’s Data Privacy Act is at least as tough as these – it is, after all, based on the GDPR language. To play it safe, EU companies can set up special standard contracts with each of their UK importers.

“In practice, it means companies will need attorneys to set up special contracts. It’s less expensive to do business.  Any UK company that receives data from an EU company—and which big UK company doesn’t? — is an ‘importer'.  Maybe eventually they’ll work out an acceptability arrangement like they did with the US.”


Tax

As it stands, VAT will remain the same unless there is no-deal. In this case, the UK will introduce postponed accounting, meaning there’s no need to pay VAT at the border.

However, If you are based outside the UK and sell parcels to UK buyers worth £135 or less, you must pay import VAT.

If your business holds stock in an EU country that it sells to EU customers, you’ll need to register for VAT in that country.

EU VAT simplifications such as triangulation and distance selling will no longer apply in the UK, which could result in more registration and reporting obligations for UK businesses.

UK firms may also have to appoint a fiscal representative in certain EU countries, to support with local VAT queries and filing.

Alison Horner, indirect tax partner at MHA MacIntyre Hudson, says:

“To avoid paying duties unnecessarily, manage increasing costs and the new administrative burdens, start-ups must think ahead.

“The first action is to register for an EORI (Economic Operator Registration and Identification) number, the unique identification number required to trade with the EU. You then need to ensure your business has the correct commodity codes and any export licences you need to trade.

“You can then explore applying for tax reliefs. There are customs procedures which may provide relief from duty, for example use of or approval to operate a Customs Warehouse facility, Temporary Admission or Inward or Outward Processing Relief. The challenge is to establish if you’re eligible, but it’s essential to investigate.

“Setting up an overseas subsidiary in the EU won’t always be necessary. You can still export and import without one and it’s not necessarily advantageous, in tax terms, to set one up.

“To get on top of the new administrative and legal hurdles you need a strong understanding of customs arrangements and a willingness to explore all the options.”

Actions: Check your software will be able to handle any new regulation, and whether abandoning EU regulations will affect how you do business on the continent. Get in touch with your accountant for the specifics of tax regulation post Brexit.


What are UK businesses saying? Top tips for preparing for Brexit

The key thing to remember about taking many of these steps is that you essentially have nothing to lose whether the UK leaves tomorrow or never.

As Mark Wright, Apprentice winner and founder of digital marketing agency Climb Online, said in our original guide:

“My advice? If you have a good enough product or service that solves a problem for your target audience, you will succeed in Business. Brexit or no Brexit, Deal or No Deal, there are always going to be challenges when starting a business and building a brand, where it is only the entrepreneurs and business owners who put in the work, and a lot of it, that will ultimately succeed.”

It’s advice that still rings true.

Here are some other steps you can take to futureproof your business:

Push your marketing efforts

Charlie Worrall, from Marketing agency Imaginaire Digital urges you to push your marketing efforts:

“While it would be in our interest for us, a marketing company, to suggest that small businesses start to push their marketing efforts, we say that from a truly objective stance. The idea that you should be saving all of your money and not spend a penny won't do you any good, it'll just mean that you have a pot of money rather than anything worthwhile. You're likely to slow down and the number of leads would decrease.

“So you'd be left with fewer leads after Brexit which is potentially when you'd need them the most! Whether you look around for an agency or you task your internal marketing team with developing new methods of marketing, it's worth your time.

“We're pushing for more of a focus on our own marketing during the Brexit uncertainty while still maintaining our clients campaigns too. Our hope is that this will continue to build our brand and develop Imaginaire's marketing portfolio. We've had a lot of feedback from clients that are telling us that they are surprised that the number of enquiries/ leads have stayed more or less the same during the Brexit leadup.

“So, pushing your marketing efforts, in our eyes, seems to be a sensible way to stay afloat during Brexit and keep things moving while the dust settles and we can all go back to normality.”

Diversify your products and markets

Ian Lee-Emery, Director of Head Light, says:

“Brexit has caused so much uncertainty for business i.e. our customers and prospects, that deals have been postponed or cancelled.  From a positive perspective, ‘derisking’ through diversification of products and markets has helped us reduce the impact substantially.

“Last year we introduced a variant of out technology to appeal to a segment we had not directly addressed before.  Whilst take-up of this ‘Talent Cloud for SME’ package has been strong, it has unexpectedly enabled us to enter conversations that would be been either qualified out or considered unreachable due to our price points.

“The other subtle impact of Brexit is that it has encouraged us to think beyond European expansion and consider other regions where GB products and practices have brand value.”

Investigate your supply chain

Jeremy Smith, Partner at 4C Associates, recommends that businesses think about what items they buy, and where they come from. Small businesses often don’t have time to spend looking at their supply options and certainly don’t think about what the origins of their stationery might be, but it might become an issue, either for ensuring security of supply, or through avoiding potential cost increases.

“Depending on what products or services you buy, Brexit might have a considerable impact. Items that are shipped from the Far East, but come through Europe risk tariffs or delays, depending on whether a deal happens or not. The extent of this is what will vary. People who buy services from the construction market in the UK are likely to find price inflation as resources become constrained due to possible restrictions on movement between European countries.

“We’ve all heard about delays at ports and whilst the Project Fear expectations are likely to be exaggerated, small businesses working with suppliers of short life goods need to be very clear on who takes the risk of waste in their process or truck loads of rotten strawberries or Welsh lamb will not be much use for the end consumer, but who take this risk? The buyer, the seller or the logistics company? If you are one of these parties, you need to be clear or consequences exist.

“Currency fluctuations will be immediate, whether it is with a deal, or with No Deal. The dollar will strengthen and the pound and euro will drop; which one by the most will depend on the deal struck, but they will likely both drop in comparison to the dollar.

“Even if you are buying in your local currency, if some part of the supply chain is buying in other currencies there is potential for this to be passed up the supply chain in the form of price rises that if you are operating in a competitive market, you may not be able to pass on to your customers meaning a margin hit or cashflow problems.

“However, it is not all doom and gloom as people with localised supply chains will suddenly become attractive and much more viable meaning growth opportunities exist for companies who have previously been competing with global supply chains.”

Look at items that are of importance to your operations or your profitability and understand their exposure to Brexit variations and investigate alternative sources of supply.

“Where you are a small business providing an alternative source of supply then additional marketing and linking yourself to Procurement companies like 4C Associates might open up new opportunities when the poorly prepared organisations of Europe suddenly see the problems first hand and need alternatives.”


Reasons to be hopeful

According to the latest Small Business Community Impact Report from small business campaigning firm peak b, 93% of small businesses have either increased or maintained their support for community organisations over the past year.

Yes, as well as creating jobs and driving the economy, the UK’s 5.7 million small businesses spend more than one working-day per month supporting charities, schools and local business groups. With each business providing an average of £3,000 a year, this equates to £15bn in annual support for local communities.

Many respondents stated that negativity and hostility surrounding the Brexit debate was responsible for reinforcing their belief in the importance of community.

This support also includes leading the way in environmental practices, and activities that improve mental health in their communities.

Michelle Ovens MBE, founder of peak b, says:

“Whatever side of the Brexit debate you are on, it is clear that the past three years have seen increased divisions permeate our national discourse. Yet amongst all the noise and uncertainty, small businesses are responding in the only way they know how, by increasing their support for their community organisations.

“Our previous research has demonstrated the community-minded nature of small businesses and the contribution they make to schools, charities and business groups in their areas, but it’s now clear that they view this as a responsibility, to bring together communities that may otherwise have been divided through political and economic uncertainty.

“It’s time that small businesses success was measured not through traditional productivity statistics, but through the real value they have on our society, and are rewarded suitably with a Small Business Community Allowance, giving them long overdue reward for the contribution they make to communities up and down the country, in good times and in bad.”


Useful resources

 Gov.uk

Gov.uk has created a handy resource to help you prepare your business for leaving the EU. This comprehensive tools covers everything from personal data, intellectual property, and EU funding.

All you need to do is answer seven simple questions to receive tailored advice on:

  • How to prepare
  • What’s happening in your industry
  • Rules and regulations specific to your business

You can find this resource here.

The FSB

The Federation of Small Businesses (FSB) also has a raft of essential business advice for small businesses.

The group has been championing the interests of UK small businesses since the referendum in 2016. As well as research, the FSB has engaged directly with key stakeholders in government including the prime minister.

Read its Small Business Brexit Pack here.