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Brexit: Practical advice for SMEs

29th October 2019

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Brexit has caused three and a half years of uncertainty for the country and is likely to cause more. For small and medium-sized enterprises (SMEs), this has brought a host of issues.

Whether we end up leaving or remaining, facing a snap election or a second referendum, the future is anyone’s guess. Some of the main questions businesses will have in the meantime are around how trade, payments, data and recruitment will be affected - especially in the case of a hard Brexit.

Below we outline some practical pointers and further resources, as well as how Starling Bank can help our business customers through a potentially turbulent time.

Get everything in order as best you can

Businesses should spend time and energy on customer service, research and innovation, as well as ensuring, for example, that you have the right people and systems in place to endure turbulence.

UK Finance, the trade body for the financial sector, emphasises the importance of companies making sure they have a solid understanding of their current financial situation and supply chains too. In other words, while there is a window of time before Brexit is implemented, now is a good chance to get things in order and see where action might need to be taken.

Euro payments will still be timely and protected

Even if the UK leaves without a deal, if you are a UK citizen or legally resident EU citizen and dealing with UK processes, such as opening a bank account, applying for a loan or credit card, or accessing FSCS (Financial Services Compensation Scheme) redress, nothing should significantly change, according to UK Finance.

If you are a UK resident moving abroad, much will depend on the regulatory framework of that country as well as your individual provider.

The UK will remain in the Single Euro Payments Area (SEPA) scheme even if we leave without a deal, so businesses can still make credit transfers and direct debits in euros in a timely and efficient manner. However, you might be asked to provide a bit more information, such as your address, to make the transaction, and foreign exchange charges will still apply and might cost more, although this depends on your provider.

Access to the single market

Brexit does not definitely mean the UK will lose access to the single market in order to trade goods and services, although an increase in cost and restrictions is likely.

Businesses will have to keep a close eye on Brexit developments, and whether we adopt the ’Norway’ model (being part of the European Economic Area that has many single market benefits), the Switzerland model (only trading with certain parts of the single market) or the Turkey model (being part of the customs union but not the single market). There are also other models being considered.

Starling has opened an office in Dublin and we are in discussions with the Central Bank of Ireland to gain an Irish banking licence. This is to enable our expansion there and to act as a springboard to our wider European expansion, starting in the Netherlands, France and Germany.

Importing from the EU

If you’re importing from the EU, you need to take a step by step approach. There is a specific Government site dedicated to preparing your business to import, from the EU, as well as the Brexit imports and exports helpline - 0300 3301 331.

There are several steps to think about, including applying for a UK EORI (Economic Operators Registration and Identification) number with a GB prefix from the gov.uk website - unless your imports are of low value (according to the government helpline, less than £700) and are being delivered by a service like Amazon or Etsy which uses a parcel company.

You should also check if you need an import licence and what temporary tariffs apply in the case of a no-deal Brexit.

Exporting to the EU

Similarly, there are several steps to take here, including checking if you need a UK EORI number, getting your documents in order and understanding how VAT works more information is available in the case that we leave without a deal. The government’s helpline also provides comprehensive advice on imports and exports (call 0300 3301 331). If you are providing services to the EU, you will need to check out the trade regulations and ensure your professional qualifications are recognised in that country.

Maintaining staff

Employees who are EU citizens (except Irish citizens) should have either applied for Settled Status or applied to the EU Settlement Scheme by December 2020 to continue to work in the UK.

EU citizens’ passports or national identity cards can be accepted as evidence of the right to work in the UK. If EU nationals want to stay after December 2020, they need to apply for European Temporary Leave to Remain status, otherwise they can only work in the UK for a three-month period without a visa.

“The movement of people and getting their personnel may turn out to be less of an issue as most EU countries have decided they’re not going to put up barriers,” said Fiona Stelfox, a lawyer, SME expert and partner of Trade Without Borders. “If the UK does the same for people coming in for work, there may be bureaucracy and cost involved, but it won’t be the worst thing that businesses have to face.”

Data compliance

Fiona added that UK businesses, if they want to trade in the EU, should continue to comply with GDPR – even if the UK is pulled more towards the looser requirements of the US – otherwise UK businesses will have a problem exporting to the EU and handling EU citizens’ data.

The Information Commissioner’s Office has some further guidance on data compliance.

Businesses should prepare for two different phases

The first phase to prepare for is the gap between the time that the UK leaves and develops a new partnership with the EU. The second phase should address the time needed by customers and businesses to adapt to the long-term changes once they have been decided.

Fiona pointed out that the Withdrawal Agreement only governs the transition period and mentions the possibility of extending it to two years. What comes after the transition period is yet to be agreed.

“During the transition period, many business matters will be more or less the same as they are now – but during that time all EU treaties will be re-negotiated,” she said. “Uncertainty applies not just to the UK and the EU, but third-party countries too that currently use EU rules to trade with the UK.”

Build an entity in the EU

Fiona said many of her clients have already set up a sister company elsewhere, often in Dublin, to enable the UK business to continue trading as normal with the single market and outside of it according to existing EU trade agreements.

“There is very little information out there, so we say the only way to protect yourself is to create another entity in an EU state, as you need some kind of insurance policy to deal with uncertainty,” she said.

She added that, for an SME in good shape, the costs of doing so were not restrictive - “thousands, rather than tens of thousands” - and businesses would reap rewards by avoiding many of the potential pitfalls and being on a level playing field with safety standards, the protection of intellectual property, payment and litigation rights.

But how to do it? Fiona says the process of setting up a company in Ireland is similar in the UK. Finding help from professionals like an accountant and a lawyer, and online banking makes it easier to continue business across jurisdictions and currencies.

Each business has different needs. If your business only wants to source and sell in the domestic market, there may be no reason to establish abroad. For other businesses, however, it may well be worth considering.

Banking with Starling

It also helps to be with the right bank. At Starling, we value transparency, simplicity, and keeping our customers up to date with notifications on their account.

And for businesses worried about making international payments, we can help there too. Starling offers the real market rate (the mid-point between the buy and sell rate in the currency market) and no hidden commission – just a 0.4% fee on the transaction which is included in the conversion amount. This year we also offered euro accounts for UK residents – a simple way to hold, send and receive euros for free – and we don’t charge for cash withdrawals abroad.

Starling knows there is uncertainty ahead for everyone, and that includes us. But this will not stop us in our tracks and we are pressing on with plans for our European expansion.

The trade negotiations and minutiae of leaving the EU will likely go on for years, but through all that time Starling will be here to support our business customers.

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