Will Brexit increase my business running costs?
There is now less than a month until the EU transition period comes to an end and, with every passing day, it becomes more urgent that businesses prepare. The key to these preparations is understanding the consequences that Brexit may have on your operations.
Upcoming changes are set to adjust the way you do things as a business, whether it be to your imports, exports, recruitment or the other processes that underpin your daily tasks. As a result of these updates, your expenditure and running costs may also change.
In a year where many companies have already experienced disruption and economic uncertainty, it is natural to be concerned about rising expenses. It is also vital to be prepared for any changes in your processes or costs, so you can put in place plans that can help mitigate any risks.
In this blog, we have outlined the different areas that could impact the finances of your enterprise so that you can shape your preparations accordingly.
Tariffs and duties
To date, the UK has enjoyed the benefits of being part of the European single market – the biggest of which being the ability to trade freely with other member states. As part of this ‘free trade’ products moved between the UK and other EU countries have not been subjected to tariffs, duties or other related costs.
Once the EU transition period ends on the 31st December, we will no longer have access to the single market principals of free movement of goods with the EU. Instead, products will be subject to tariffs, which could see the prices of everyday goods fluctuate.
At the time of writing, it is not yet clear whether the EU and UK will agree on a deal ahead of the new year. If an agreement is made, this should dictate what if any tariffs and any other costs that UK businesses will need to pay when sending goods to EU countries and vice versa. Regardless, there is a chance these will be higher – at least on some products – than under the single market.
In the event of a no-deal scenario, the UK and EU will need to trade on World Trade Organisation rules from the 1st January 2021. Under these rules, specific goods we export to the EU would need to have a tariff, at an average of 2.8% (for non-agricultural products). While this may not seem steep, it is a rise on what we currently have to pay. Moreover, goods like dairy products have an average tariff on 37.5%, which may be more concerning. A full list of EU tariffs can be seen here.
Due to these tariffs, UK firms exporting to the EU would need to absorb the costs, which could result in prices increase.
Businesses importing from the EU will also see an impact from new tariffs, as a result of EU suppliers needing to increase their own prices to account for the UK Global Tariff. However, under the new tariff system, the government has introduced zero-per cent tariffs on 47% of goods, including baking powders and oils such as omega 3. This means some businesses may be relatively unaffected by the changed tariff system, depending on what they import.
Some companies may also be able to apply for reduced customs duty, depending on what you are importing and for what reasons.
If the cost of your supplies does change, it will naturally have ramifications for your cost of goods or overheads – and as such, you will need to account for it as part of your finances. As well as tariffs and duties, you may also need to consider the impact of changed VAT.
In line with updated processes for trade, you may need to spend more time and effort when importing or exporting goods. This could include filling out customs declarations (now required on all imports and exports with the EU) and any other paperwork, and spending time ensuring your goods are qualified to pass border checks.
Due to the extra time needed, costs will likely rise – such as if you have to hire additional resource or your staff needing more time to prepare imports and exports (therefore extending timeframes and increasing your costs per sale). If you are carrying out your customs declarations in house, you may also have to invest in software and staff training to make this possible. If you are appointing an external provider to do this for you, you will have to pay for this service.
Some businesses may need to adapt their labelling on relevant goods following Brexit, such as for food and drink, so they show the correct country of origin and emblems. You may also need to use a UKCA mark where you previously used a CE mark – though the CE mark can continue to be used until 31st December 2021. As a result, costs may arise around the reprinting of labels or conformity assessments to ensure you can use the appropriate marking.
You may also need to pay new administrative costs around importing and exporting, such as for licences, certificates, health checks or product inspections. Whether these costs apply will depend on the goods you are moving.
Cost of supplies
We have already discussed the impact tariffs could have on your supplies. On top of this, the increased effort and administrative costs associated with imports and exports may cause your suppliers to bump their prices. This could affect both any EU suppliers you have, as well as UK suppliers who themselves utilise European goods for their products or services.
There are also fears that, from 1st January 2021, there may be shortages of certain goods due to border delays and other disruption. If goods become harder to obtain, there is additionally a chance it could drive up prices.
If the issues with your suppliers become overwhelming – whether that be as a result of hiked prices or extended delivery timeframes – you may need to consider switching to new providers. This may include utilising domestic companies or exploring competitors in non-EU countries. Doing so may enable you to keep your running costs at a more favourable level.
Increased labour costs
Another substantial development post-EU is the introduction of a new immigration system, focused on bringing skilled workers to the UK via a points-based scheme.
Under the new scheme, one of the requirements for anyone entering the country is to have a job offer with an annual salary of at least £20,480. Additional points are offered for salaries over £25,600. This means that, moving forward, you need to ensure that any roles you wish to recruit overseas will need to meet this threshold.
Many industries have previously been known for using cheap, ‘unskilled’ labour, such as hospitality and construction. Under the new rules, companies would no longer be able to utilise such work, which could see the costs of staffing increase.
The future of seasonal labour is also uncertain, with a pilot scheme currently being run. Any restriction to such work could similarly impact businesses who have historically relied on it.
Under the new system, employers bringing workers in from outside of the UK will need to provide a sponsored job offer, which means having a sponsor licence. Depending on the circumstances, you may need to pay a fee between £536 and £1,476. This will need to be added to your expenses.
While the above may create an uncertain picture of running costs and financials for UK businesses, it is vital to remember that it is not all negative. Many opportunities lay ahead for companies, and it is entirely possible that some will find themselves in a better financial state after Brexit.
One example is the potential gap left by EU firms in terms of providing supplies and services. With new requirements leaving such businesses less desirable as a result of higher prices and effort, many UK businesses may be more attracted to utilising domestic suppliers. This could lead to improved sales and revenues for some companies as a result of seizing new opportunities.
Similarly, with the single market no longer an option, there is a more level playing field between EU and non-EU countries. This means enterprises may be tempted to utilise overseas suppliers from the rest of the world. This could lead them to find more competitive prices at the same or better quality, which lower overall running costs.
Of course, it is also important to remember that the government continues to work towards free trade agreements with several countries, which could open further opportunities to businesses.
In this period, with the end of the EU transition period nearing its end, it is essential that enterprises act to adapt their operations in time for the new year.
Recent research reports that almost half of small businesses have not yet made any preparations for Brexit. If this applies to you, you may find yourself dealing with unwanted disruption, leading to reduced productivity and higher costs. By considering the implications now, you can plan effectively and prevent any financial shocks.
If you are struggling to get ready, we are here to help. Our team of experts are knowledgeable of all key Brexit topics, including trade, finance and employment, so we can provide tailored guidance for your unique challenges.