With Brexit high in the news again, concerns rise for small and medium enterprises (SMEs). Predictions vary from possible positive outcomes to complete doom. And the current uncertainty, with waves of declarations from politicians, doesn’t clarify economy matters.
But what do we know at the moment? And what are the major, imminent risks for UK businesses?
First and foremost, still hanging with little help from the government on how it will be resolved, the matter of VAT raises concerns. Despite publishing a White Paper on future economic partnership with the EU post Brexit, the government failed to address the issue of VAT.
The document covers 5 points – a “rulebook” for trading goods, a “facilitated customs agreement”, UK and EU law working together, immigration policy, and remaining within the EU agencies for major industries. However, any mention on VAT deepens confusion rather than suggests solutions.
Currently, 132,000 businesses risk finding themselves in difficulty with new VAT regulations. And this brings us to research data from two major UK business organisations. Both show how the political uncertainty affects investment and development.
Nearly half SMEs unprepared for Brexit
According to a recent survey by the Federation of Small Businesses, only one in seven small businesses have started to plan for a tough Brexit. The number might come across as staggering. We see that 41% believe their business will be affected, but haven’t started preparing yet. Only one in ten consider Brexit will benefit their progress and profit.
As the Prime Minister’s talks with Brussels fail to progress, many businesses cancel investment. Data presented by major UK business organisation The CBI stands proof. Of the members surveyed, 39% consider emergency measures and plans after November 2018. Quoted by the BBC, Nicole Sykes, the CBI’s head of EU negotiations, says many businesses cancel investment:
“We heard from a fashion house that wanted to set up a new factory in the UK. £50m of investment, cancelled.”
“But we’re also talking about some small things. We heard from a Northern Ireland farmer who wanted to build a new machine to make their operations more efficient, grow competitive. Again, that’s been cancelled. So we really are talking about real economic consequences.”
Post Brexit VAT and the decline of the pound sterling
Now, if your businesses already plans for a no deal Brexit, you probably already take into consideration future VAT changes. HMRC officials also declare they are developing a new system to register new VAT numbers. However, businesses should clearly consider an increase in tax when exporting goods. While some experts regard the drop in the pound sterling value as positive, potentially encouraging export, matters will not be as straight forward.
Most businesses declare they will either cut investment, or staffing levels should VAT increase considerably.
Our professional advice is to consider these aspects when drafting future business plans.