Brexit Bites: Small businesses bear the burden of a last-minute deal

February 26, 2021

2 min read

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What's going on here?

Small businesses are struggling with increased bureaucracy and costs as a result of Brexit, leaving some business owners wondering if EU trade is still worthwhile. 

What does this mean?

With the high levels of uncertainty produced by the last-minute Brexit deal, small businesses have faced chaos as they navigate the new rules and requirements over the last month. Unlike large companies, many small businesses lack the resources to adapt to the sudden costs and administrative burden.

The changes include extra courier fees, costs of administration of VAT, health certificate requirements and duties, a type of tax imposed on imports and exports that are collected as government revenue and to protect local industries. These are placed on goods originating from outside of the UK which are then sold on to the EU. Changes in VAT rules mean sales tax must be registered in and collected by each separate country a company sells to. Although the eventual customer will now pay this bill upfront, a lack of preparation has led to VAT payments being demanded at the border. There is also a stack of new paperwork. For example, traders in England, Scotland and Wales are now required to make customs declarations for export into the EU the same as they would with countries elsewhere in the world.

What's the big picture effect?

Along with the administrative burden, these requirements drive up the costs of the goods and services sold, with the difference either being passed onto the customer or absorbed by the small business. This could lead to fewer orders and lower profits in an already competitive marketplace.

According to the Federation of Small Businesses, more than a quarter of the UK’s 6m small businesses trade with the EU. These changes have led to some businesses considering whether continuing to export to EU countries is worth the cost. London-based company The Whisky Exchange posted a notice on its webpage stating that it will not be shipping to the EU as a result of a “lack of clarity over cross-border shipping rules”. Simon Spurrell, director of the Cheshire Cheese Company explained that “food producers in the UK cannot commercially afford to sell direct to EU consumers”. He highlights a £180 health certificate requirement on retail orders as low as £25, which would not be commercially viable. What has been described as “teething problems” therefore seem like permanent, structural components of the Brexit deal. 

Government advisors at the Department for International Trade have encouraged British businesses that export to the EU to set up companies inside the EU borders. As a result, many businesses are now considering moving parts of their operations into the EU and opening warehouses or fulfilment centres. Such investments would be costly but would avoid some of the extra requirements in the long-term and keep the customer base open. However, this shift would take the creation of jobs and payment of taxes away from the UK economy, and into the EU, undermining the spirit of the Brexit campaign. For small businesses operating against the backdrop of the pandemic and Brexit, the light at the end of the tunnel still seems very far away. 

Report written by Yaeno Fernandez

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