Brexit FAQ: How prepared are you?

FAQs| 6 min read
Reading Time: 6 minutes

Q. What is Brexit?

Brexit stands for “British exit.” It refers to the United Kingdom’s decision to leave the European Union. On June 23, 2016, the UK voted on the Brexit referendum, and the result was a slight 51.6% majority in favor of leaving the EU.

Q. Why has Brexit taken so long?

David Cameron, the Prime Minister at the time, campaigned for Britain to remain in EU. After the referendum results, he resigned. To avoid leaving the EU without a deal (known as “hard Brexit” or “no-deal Brexit”), the government provided an extension twice to create time for negotiations.

A deal with the EU is important. No country has ever left the EU before, so this has created a lot of issues for the UK parliament and EU government to work out. Through negotiations, the UK hopes to retain a thriving economy and appease those that were not in favor of leaving the EU. Meanwhile, the EU provides its member countries with certain benefits, like trade agreements and the freedom for EU citizens to travel from country to country without strict visa requirements. The EU government does not believe it’s fair to allow the UK to leave but still hold on to those same benefits.

After Cameron stepped down, Theresa May took over the Prime Minister’s position. While in power, she aimed to pass the deal which she had negotiated with the EU, called the Brexit withdrawal agreement. After parliament rejected this proposition three times, May stepped down from her position on June 7, 2019.

Q. Where is the Brexit situation at now?

Boris Johnson, a former mayor and a Brexit supporter, was assigned to be the Prime Minister after Theresa May resigned. After coming into power, he campaigned for the UK to leave the EU by October 2019, with or without a deal. Looking at the issue from a business perspective, Britain is still a part of EU’s single market and customs union. This enables EU businesses operating within Britain to have a combined VAT system and work within a single trade area devoid of checks.

Q. What are the two Brexit outcomes?

There are primarily two outcomes to the Brexit issue: the UK leaves the EU with a withdrawal agreement or a no-deal situation. Let’s take a look at what these mean:

  • Withdrawal agreement: The UK government still hopes for a withdrawal agreement before it leaves the EU on October 2019. Since the negotiations are still ongoing, the public has been kept in the dark about what the withdrawal agreement will demand. The UK parliament had rejected Theresa May’s agreement drafts before she resigned. The UK assumes that a withdrawal agreement comes with a transition period, during which they will have to continue to comply with EU legislation.

  • Hard Brexit: The UK will leave the EU without a withdrawal agreement in place. The UK will then be given a “third-country” status with respect to the EU. Reports say that the UK, in its planning document called Operation Yellowhammer, has mentioned that “all rights and reciprocal arrangements with the EU end.” The UK government has also come up with technical notes explaining the impact of Brexit on various industries. The planning document makes a remark that larger businesses in various sectors are likely to have better contingency plans in place to cope with this new development. Small and medium businesses will be hit the worst as they rely heavily on easy access to warehouses throughout the EU.

Q. When is Brexit happening?

The UK will officially leave the European Union on October 31, 2019 at 11pm (BST). Most of the EU laws will continue to apply to the UK as domestic laws. Phrases in these “retained EU laws” concerning references and reliability on EU institutions will be removed. If a Brexit agreement is reached, a transition period will follow where other EU laws will be applicable for the UK for a period of time to enable an orderly exit from the EU without affecting businesses.

Q. How will Brexit affect trade?

The consequences of the UK leaving the EU will depend on how trade costs change post-Brexit. There are two scenarios in this situation. One, the UK could enjoy the same status as that of Norway with respect to its EU trade relations. Norway has a free trade agreement with the EU, which means no tariffs. It is also a member of the EU single market and complies to the policies and regulations in place to reduce the non-tariff barriers.

Two, the UK is unable to cut a trade deal with the EU. Should this be the case, then following Brexit, trade between the UK and the EU will be governed by the World Trade Organization’s rules.

Post-Brexit, the UK will no longer be a part of the EU free trade area. This situation will have a spiralling effect. A few of the affected areas will be the import and export of goods and services, the employment of EU citizens in the UK and vice versa, transport and logistics, copyright, trademarks and payments, environmental industrial standards, and the transfer of personal information across borders.

Operation Yellowhammer mentions the worst-case scenarios in the event of a no-deal Brexit. Some of them include new immigration checks, an increase in prices for gas and electricity, and interrupted financial services across borders. Petroleum prices and the flow of data will also be disrupted.

Q. How will Brexit affect small-scale business?

Small and medium scale enterprises (SMEs) are preparing themselves for Brexit however they can. The following are a few key areas that will be affected the most:

Employment: Tighter immigration rules are likely to raise concerns when it comes to talent acquisition. Small businesses have to revamp their skill strategies before hiring. Reports say that there has been a drop in the number of EU nationals joining UK based companies. The uncertainty caused by Brexit is causing a skill shortage across the country.

Finance: The Bank of England believes that UK banks can manage the turmoil due to Brexit. However, this would cause market fluctuations, thus restricting the banks ability to lend money to businesses. To ease this issue, the UK government might establish the UK Shared Prosperity Fund (UKSPF). The responsibility of this fund is to fight social inequality by raising productivity in economically backward areas of the country.

Growth: The UK was one of the fastest growing economies amongst the G7 countries until the June 2016 referendum was announced. The International Monetary Fund (IMF) has predicted that the growth rate for the UK will remain just above 1.5 percent as long as the UK leaves the EU in an orderly fashion. The sectors which are most concerned with growth are import and export firms.

Q. How long will it take for my business to adapt to these changes?

It is difficult to be specific about the time frame, although reports suggest that an average of 15 months is required to prepare for the change. The EU states an ideal period of nine months. Businesses will be in a transition period until the end of 2020.

If the UK walks out without a deal, the transition period for businesses will remain uncertain. It is important that businesses start planning and setting measures to cope with the change.

Q. How will Brexit affect UK businesses with mostly UK customers?

All businesses in the UK will be affected in some way or another. So, all businesses must prepare to make modifications to their business processes. For example, if you are a product manufacturing company serving UK customers, consider whether your parts are imported from outside Britain. Operation Yellowhammer clearly states that there could be import delays because of HGV congestion. Delays can even occur in custom clearance areas. Owners may now have to seek replacements from local suppliers to keep their business going.

Service based companies, like marketing agencies, may be able to serve only domestic customers. There might be delays in sharing data until GDPR regulations are changed because some businesses may hold personal information on their EU employees that will no longer be permissible to share.

Aside from finding measures to overcome potential problems, the scope of business opportunities will also decrease. Businesses should consider this when drafting their preparedness plans.

Q. Can a business in the UK have EU citizens as employees?

If the employees have been living and working in the UK for more than five years, they will remain employed.  The proposal for this states that EU citizens will receive a “settled” status after they have lived in the UK continuously for five years. In order to qualify, the employee will have to be living in the UK by December 2020.

This status allows the citizens the right to continue their work in the UK.

Q. How to assess if you are Brexit ready?

The UK government has come up with a checklist to help businesses prepare for Brexit. Organizations can create contingency plans based on an impact assessment. Click on this link and answer the questions to assess where you stand: https://www.gov.uk/get-ready-brexit-check

Related Posts

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Books

Switch to smart accounting. Try Zoho Books today!

GET STARTED NOW