It feels as if the process of the United Kingdom leaving the European Union has been going on forever. Not only have the negotiations become interminable but the drama within the Houses of Parliament is something straight out of the Game of Thrones.
Whilst the political intrigue helps to sell newspapers it does little to help small business owners from the Midlands to the Highlands – many of whom are trying to determine how the UK’s divorce from the EU will impact everything from hiring to purchasing.
As such the question on the minds of many business owners is what sort of impact will Brexit have? Granted, the situation remains fluid with pundits proclaiming everything from a deal is almost in place to collapse of the British economy. With that in mind, here is some insight as to what Brexit means for UK economy – specifically small business owners.
Import Taxes are Likely to Change
It doesn’t matter if you are importing cheese from France or used auto parts from junk yards in Houston, Texas, the spectre of Brexit is likely to lead to an uptick in import taxes – even if it is only in the short-term.
The reason is that the UK has operated under the trade rules of the EU for roughly 40-years and during that time Her Majesty’s government has become overly reliant on the rules created in Brussels and not Westminster.
Whilst some of this is to be expected – after all, the EU is an economic community first and foremost – Brexiters saw this encroachment as an erosion of the nation’s sovereignty. However, what many leave supporters failed to recognize is that there is likely to be a period where the Customs and Revenue departments will either lack clear guidance on what rules to follow or will default to laws which pre-date the UK’s entry to the EU.
In either case, this is bound to create a vacuum whereby the taxation of imports is likely to go up. Even if this is in the short-term, it will particularly impact small business owners as they have fewer resources to cushion the blow from rising costs.
Granted some of this increase in duty tax and VAT will be passed on to the customer, but this also risks driving said customers into the arms of larger businesses – many of who are in a better position to renegotiate prices in the face of higher taxes.
Small Business Financing
A potential unintended consequence of Brexit will be its impact on funding for small businesses. This is because programmes such as the European Investment Fund (EIF) to where able to deploy billions of pounds in investment for small businesses in EU member countries, such as the UK.
However, time is running out for UK business owners to take advantage of this programme and to date, the Government has given little guidance on its plan to offer a replacement.
According to the Economist, the EIF had invested nearly £2 billion in the UK since its inception but the void left by the absence of this funding could not only impact today’s small businesses but also would-be entrepreneurs and the long-term impact could be a significant loss in tax revenue from these new and growing businesses.
Yet, the outlook is not all doom and gloom as programmes such as SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) will continue to provide tax relief for investors of early-stage companies and whilst this won’t bridge the gap it will help to ease the blow.
Changing Tax Landscape
It doesn’t matter if you are the CEO of BT or running an independent pharmacy outside Cardiff, you should expect changes to the corporate tax code. Whilst most economists believe the changes might be beneficial to businesses in the short-term. For example, a reduction in the corporate tax rate would help most small business owners.
However, it remains unclear how such a reduction in revenues would impact government services and this could impact the customer base of many small businesses. This uncertainty could lead to a reduction in consumer spending and this could have a dramatic impact on the cash position of many small businesses.
The British are known for their ability to carry on through adversity, it remains unclear how successive generations which have grown used to the relative ease of travel and trade afforded by EU membership will cope with life after Brexit.
As such, many are asking whether the British are ready for Brexit? Whilst this is largely a matter of psychology, the fear would be that the potential negative impacts of Brexit would impact consumer confidence. However, we won’t really know if this is the case until next year as such small business owners across the country are wise to keep calm and carry on.
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