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Brexit overview: how are businesses faring now?

It has been almost two months since the EU transition period ended, and the UK-EU Trade and Co-operation Agreement came into place. As part of the UK’s changed relationship with the EU, various new processes and protocols became a requirement for businesses on both sides.

While teething issues were primarily expected in the early stages of Brexit, there has been much media attention on the disruption and difficulties faced by UK companies, as well as continued debate about the future of the UK removed from the European Union.

With some time having passed since we left the EU on 31st December 2020, it seems an appropriate point to take stock of how businesses have fared in the weeks since Brexit and what the future looks set to hold.

In this blog, we will examine the issues facing companies today, and the actual impact Brexit has had to date.

Import and export

One of the most cited areas of contention for businesses after Brexit is changed trading processes with the EU. Custom declarations and other documentation are now required on all imports and exports, as well as border checks to ensure that goods are meeting the rules.

For companies who have never had to fill in such paperwork for their exports and imports, understanding how to compile the correct documentation has been a learning curve. The increased bureaucracy has led to cost increases for firms (in conjunction with VAT changes) and more work required to complete trade transactions.

The combination of border checks and paperwork have also led to longer turnaround times, with many exporters facing delays in getting their products to their destination country. COVID-19 consequences have undoubtedly worsened the problem.

The impact on trade has had ramifications, with some firms stopping supplies to their UK or EU customers due to the effort and cost increases. Exports to the EU from the UK have declined by 68%, suggesting that a mix of companies stockpiling and more businesses have been impacted by this in the immediate post-Brexit landscape.

Peter Cowgill, chairman of JD Sports, has reported that the impact of Brexit on trade has been ‘worse than feared’ for the brand, with the changes resulting in millions in extra costs when shipping to the EU. This mirrors the sentiments of many small businesses across the country. A lobster provider has also been forced to close, with Brexit restraints on their largely EU customer-base directly attributed to as the main reason.

The trade issues have gone on to culminate in supply shortages for businesses who rely on EU imports. Similarly, EU businesses requiring UK supplies have been left short. While some of the disruption has been alluded to as ‘settling issues’, there is a risk of companies losing custom as their overseas clients seek alternative suppliers to overcome the delay and cost struggles.

Understanding new rules

In our talks with businesses during our advice sessions, we regularly handle queries from companies struggling to adjust to the new rules. Most commonly, these apply to rules of origin, conformity marking, VAT and incoterms.

Some of these, such as rules of origin, were agreed under the UK-EU TCA, which was only published at the end of December, giving businesses limited time to process them.

Many of the rules have been criticised, including rules of origin as a ‘ticking time bomb’ and VAT for rising prices. In particular, VAT has led to unwelcome post-Brexit costs for consumers and importers alike, leading to some EU firms to stop accepting UK deliveries.

In the case of rules of origin and conformity marking, there is currently a grace period applied to these. The grace period ends on 31st December 2021 for rules of origin, at which point businesses will need to provide evidence of origin before exporting goods. For conformity marking, most goods must display the right mark from 1st January 2022. While the grace periods give companies time to adapt to the changes now, it does mean we will not see the fall-out until next year if there is to be any.

It is worth noting that it isn’t all bad news. Car manufacturer Nissan has stated that the rule changes – specifically rules of origin, which mean electric vehicle batteries need to be produced in the UK or EU – will give them a ‘competitive edge’. This suggests that there are still opportunities for businesses, as long as they adapt and embrace the changes brought by Brexit.

The issue of Northern Ireland

Northern Ireland was a talking point during Brexit negotiations and continues to be now it has happened. Under the Northern Ireland protocol, Northern Ireland remains in the UK customs territory, but checks are required on certain goods moving between NI and the UK. However, there has already been much speculation that the rules are not working.

Some Northern Irish businesses, such as supermarkets, have faced a lack of supplies as UK exporters try to adapt to the trade rules. Manufacturers have reportedly been significantly hit by the issue. Due to the problems, some UK companies have given up supplying to Northern Ireland altogether.

Tensions reached a boiling point just weeks ago when the EU threatened to invoke article 16 to prevent the UK from getting backdoor access to COVID-19 vaccines. While the EU has since backed down, the commotion showed the continuing difficulties concerning Northern Ireland.

Due to the ongoing challenges, leaders are still holding discussions in an attempt to resolve tensions. However, only time will tell if any beneficial outcomes are realised in these talks – and in the meantime, businesses in the UK, EU and Northern Ireland must continue to deal with the implications on their operations.

Immigration

From 1st January 2020, a new immigration system came into action in the UK, with anyone choosing to move to the country needing to do so under a points-based scheme.

Compared to the other challenges businesses currently face around Brexit, there has been relatively little focus on the impact of immigration. The main concerns cited to date are companies’ ability to attract overseas talent to the UK, in line with the points system.

The EU Settlement Scheme is still open, and the deadline is not until 30th June 2021. This means that EU nationals living in the UK still have a few months to apply for settled status if they have not already done so, enabling them to continue to live and work here. Those without this status from July risk losing their right to work and could be deported.

Once the EUSS ends, the issue of immigration and its effect on labour availability may become more prominent, particularly for companies who find their workers leaving the UK.

In the meantime, it is advisable to inform your staff members about the EUSS so they can apply to remain in the UK if they wish to.

Conclusion

There is no denying that the last two months have been a challenging time for some businesses. While some may have escaped the effects of Brexit, those involved with trade (whether it be through active exporting or using imported supplies) have had to adjust to new processes and handle the risk of delays and increased costs.

The adaptation to the new rules is set to continue as companies realise the implications of UKCA marking, rules of origin and other factors on their operations. This may be more than ‘teething issues’ as businesses learn how to change the processes they have been working to for years.

It is worth noting that it is still relatively early in the post-Brexit reality. With four years taken to finalise the deal, it can be expected that more than two months will be needed to iron out the bumps. There is also always the opportunity for change as the UK continues to talk with the EU and make global trade deals.

For now, businesses must continue to be patient and access available support for the challenges they are dealing with.

If you need support with navigating the obstacles associated with Brexit, we are here to help. Our team of advisors have expertise across the topics of import, export, employment, finance and rule compliance so that we can assist you in your understanding.