With talks of a ‘No Deal’ Brexit on the horizon, many small business owners are increasingly worried about how this could affect their future prospects.
The governor of the Bank of England, Mark Carney, has warned that most businesses are unprepared for a no-deal Brexit and according to a study from the Federation of Small Businesses, he isn’t wrong. It is reported that only 14% of UK SMEs have actually started planning for a ‘No Deal’ Brexit.
Naturally, with less resources to draw on than larger companies, it is likely that smaller businesses could struggle to cope with changes. So, as we edge nearer and nearer to the 29th March, the official date for Britain leaving the European Union, many of us are left wondering: what exactly is in store for small businesses?
The head of Deloitte's tax policy group, Daniel Lyons, is of the opinion that most corporation tax issues will be quite manageable after Brexit. This is of course quite reassuring for small business owners to hear.
It has also been suggested by the government that corporation tax may drop to 17% for the Financial Year beginning 1 April 2020, with the objective of providing better opportunities for business investment and growth.
However it is difficult to know whether or not the UK economy will be able to accommodate such taxation cuts, and there is no certainty that such will actually be made. After Brexit, however, it will be easier for the UK government to be more generous with tax reliefs than it is now, and this factor is not necessarily dependent upon Britain leaving the European Union with or without a deal. The increased likelihood of a tax reduction should be welcomed news for small business owners.
If you are looking to start up a new business, or expand your current business, it will likely be more difficult after a “No Deal” Brexit. Many small businesses have been supported with funding through the European Investment Fund (EIF), which was financed by the European Union, European governments and some private banks also.
The funding provided by EIF was rather substantial: over £2billion has been devoted to UK companies, and EIF funding accounted for more than a third of investment in budding UK-based businesses between 2011 and 2015. But Brexit, and a ‘No Deal’ Brexit in particular, will surely see a loss of this funding opportunity for smaller UK businesses. A ‘No Deal’ Brexit could mean that continued access to EIF funding could cease.
Consequently, small businesses would be left having to seek out funding elsewhere, potentially missing out on opportunities to grow, or even start up in the first place. Do remember though, that there are of course other ways for businesses to obtain funding. ‘Crowdfunding’, for example, has become increasingly popular and successful in recent years, and the flexibility of emerging alternative funding options, such as merchant cash advances, have proven particularly popular amongst SMEs.
Extra Costs for UK Exporters
Any business that currently ships out goods to customers aboard will certainly face increased costs in the eventuality of a “No Deal” Brexit. An analysis of trade figures by the UN and World Bank show that the $204bn-worth of British goods bound for Europe each year would be hit with $7.6bn in new tariffs under current WTO rule.
Increased shipping costs naturally have potential to cause serious damage to small businesses and/or might force them to only sell to UK customers.
It is thought that low-margin sectors will be hit especially hard (farmers and car manufacturers) with increased tariff charges, that they were previously exempt from under the EU, returning. Some ministers fear it could take a decade to secure a post-Brexit free trade deal with the European Union, which would leave UK exporters paying higher costs for an extended period of time, putting further increased financial pressure on our small businesses.
What Can You Do?
Creating a solid plan for how your business can tackle and work through a potential “No Deal” Brexit, will reduce stress and alleviate any future uncertainty.
There are a number of resources available through the government website, offering support and guidance. It is also reassuring to know that despite all of the current turmoil surrounding Brexit, the economy still continues to grow, with current employment levels remaining high. This offers some reassurance that even once the UK has officially left the European Union, the economic impacts might not be quite as hard hitting as some are anticipating.
Furthermore, there will still be a transition period, beginning on the 29th of March and lasting until the 31st of December 2020. So, this should afford small businesses with some time to adjust to a new regime, whatever that may be.