Seamus Gates, director of corporate finance at leading Welsh accountancy firm Broomfield & Alexander, takes a look at how Brexit needs to work for SMEs, as the UK prepares to officially leave the European Union:
While much has changed since the UK public voted to leave the European Union last summer, one thing has remained the same – uncertainty. As political negotiations have gone back and forth, with the most recent resulting in the announcement that Article 50 will be formally invoked this week, many of our clients have voiced the same concern, that a lack of understanding of what Brexit will entail is disrupting their ability to plan a long-term strategy. Until this process is officially started this will remain the case, but there are several ways that our negotiators can ensure that our SMEs can get the “right deal”, as the Prime Minister put it.
For some businesses, the decision to leave the EU has provided them somewhat of an uplift. The drop in the value of the pound has made exports from the UK more attractive and allowed exporting businesses here to be more competitive than their European counterparts. Of course, there are negatives to this including a rise the cost of importing goods. These costs are inevitably passed onto the consumer down the line – which goes a long way to explaining recent figures that suggest inflation is at its highest since 2013.
SMEs will be looking to Government for clarity on how Brexit will affect their operations. For example, most UK firms currently trading within the EU don’t incur European VAT – however, once we leave, this won’t necessarily be the case. Many companies that trade exclusively in Europe may never have had to deal with these fees, which could have a significant bearing on their export strategy. For this reason, future trade deals need to either continue the current tax arrangement, or provide a simple alternative, so businesses are able to plan effectively.
While European trade deals are important, one area that is often overlooked is the effect on trade outside of Europe. UK businesses operate far and wide – notably with the US, Far East and India – and currently many of these countries work with us as ‘European’, not UK companies. Trade with firms in countries like China are key to ensuring long-term growth for many SMEs but trade deals will need to be re-negotiated with many of these territories if UK businesses are to prosper after Brexit. The Prime Minister’s recent visit to India to discuss possible future trade deals with the UK underlines this importance.
Since the referendum vote, other global changes have thrown potential trade agreements into doubt. The US has started to take a far more protectionist stance to its foreign affairs, which could be replicated by other major worldwide powers. If this happens, some territories may become more reluctant to work with UK businesses than has historically been the case – further stalling the process of negotiations and potentially leaving businesses in a worse position when trying to import and export goods and services.
The UK government has a huge task ahead as Brexit negotiations get officially underway. It is also important that we don’t take our eye off the UK economy as we deal with the process of leaving the EU, as inflation and fiscal policies can and will fluctuate during this time. It’s up to the government to manage these finer details while also negotiating the best deal for businesses in the UK.
Regardless of whether business owners voted leave or remain, they all need certainty – and only strong and clear decisions from the government will bring that.