How does Brexit affect businesses? Impact on trade, workforce, supply chains explained

Britain’s decision to leave the European Union was a seismic historical moment which had a profound impact on how all kinds of businesses are run, from large-scale enterprises to modest business ideas from home.

This impact has been felt in various ways, whether in terms of imports and exports, due to the UK no longer being part of a single trading area with its European neighbours, or how businesses recruit staff for particular roles, due to the end of free movement of people to and from the rest of Europe.

This unprecedented geopolitical shift has undoubtedly been a steep learning curve for those launching or growing their small business ideas. But, as well as having to understand and adjust to fresh bureaucratic processes and challenges, entrepreneurs have also been presented with new opportunities in the post-Brexit world.

If you’re one of those entrepreneurs wondering “How does Brexit affect my business?”, this is the guide for you. We’ll break down the key areas of operations management which have been affected by Brexit, and outline some of the potential benefits which can help propel your business growth strategies.

How does Brexit affect UK businesses?

As with most things related to the EU referendum and its aftermath, the question “How does Brexit affect businesses?” is a nuanced one, with various layers to consider if you run a business which has dealings with European countries.

It should be noted that trade regulations regarding Northern Ireland and the EU stand apart, as Northern Ireland remains aligned with the EU single market, and some areas of EU law continue to apply in Northern Ireland.

For simplicity’s sake, the discussion in this guide will focus on regulations regarding the EU and Great Britain (England, Scotland and Wales).

Let’s consider Brexit’s tangible impact on these specific areas:

• Trade tariffs

• Non-tariff measures

• VAT

• Workforce

• Supply chains

Trade tariffs 

If you’re planning out how to start a business that will have dealings in the EU – say, you’re interested in things to make and sell and have identified target markets in European countries – then it’s vital to be aware of the post-Brexit trading relationship established by the EU–UK Trade and Cooperation Agreement (TCA).

Having come into effect in 2021, the TCA allows for imports and exports to take place between the EU and Great Britain without the buyers having to pay tariffs, which can help you price products competitively when exporting to the EU.

The goods must meet “rules of origin” requirements to qualify for tariff-free trade. These requirements ensure businesses can only benefit from this preferential agreement when trading goods which have actually been made in Britain or the EU, rather than simply re-exporting items they’ve brought in from other countries around the world.

Items can tick the rules of origin box if they are “wholly obtained” in Britain or the EU, meaning they’ve been created without using any materials from outside the relevant zone. An example of this would be if you’ve set up a limited company to harvest and sell honey from your own beehives.

Even if items do feature imported materials, they can still qualify if these materials have been “sufficiently worked or processed” so that there’s a percentage increase in value (typically at least 50%) and the materials are altered to the extent that they will be given new tariff classifications.

For example, let’s say you launch an online business idea where you’re selling bespoke furniture you create using raw materials from around the world. Your artisanal process will transform and add value to those materials to such an extent that the resulting furniture should qualify for tariff-free trade.

The “sufficiently worked or processed” stipulations are laid out in more detail on the official government site on Rules of Origin. There’s also a helpful tool for looking up the specific requirements for qualifying for tariff-free trade for thousands of different items.

Becoming familiar with the regulations relating to your business and products should be part of your checklist for starting a business if you anticipate trading with people and organisations in the EU.

Non-tariff measures

While the TCA has successfully maintained tariff-free trade between the EU and Britain, there’s no denying that “non-tariff measures” have increased as a result of Brexit.

As the term suggests, these are barriers to trade which aren’t related to the imposition of tariffs, and can include licensing and labelling requirements, adherence to particular health and safety standards, customs obligations and other assorted red tape which can cost time and money to deal with.

The extent to which post-Brexit customs and border regulations affect you will very much depend on what kind of business idea you’re pursuing. Let’s take the example of a British horticultural business cultivating exotic plants in polytunnels, which imports many of its specimens as young plants from across Europe.

Before Brexit, the business would have been able to freely trade many plant species protected by CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora). In the post-Brexit era, the business will need to obtain the relevant import permits to allow specific plants to enter the country, which may lead to lengthy delivery delays and disrupt cash flow.

If imports and exports are likely to form a significant part of your operations, then getting to grips with the relevant non-tariff measures will effectively count among the legal requirements for starting a small business in your chosen industry. 

It can be undeniably daunting to deal with the various checks and obligations relating to the trade of goods with the EU, especially when you’d probably much rather be focusing on training employees or devising your small business marketing strategy rather than wading through bureaucratic details.

Fortunately, the UK government website has thorough checklists for both importing and exporting goods (look here if you’re a Northern Ireland business).

These checklists will tell you what licences and documentations you’ll need for the type of goods you’re trading, how to get the right Economic Operators Registration and Identification (EORI) number for exports, how to formally classify goods, and how to prepare invoices correctly for EU exports.

VAT

Answering the question “How does Brexit affect businesses?” means addressing another significant issue: VAT. As a result of Brexit, the existing VAT rules pertaining to goods imported to Great Britain from non-EU countries now apply to EU countries as well.

VAT is payable on goods from the EU at the same rate as goods in Britain (usually 20%), and applies to the entire cost of a shipment, including the value of the goods, packaging and delivery costs. If a consignment is valued at £135 or below, VAT is charged at the point of sale, and should be recorded on your VAT return as a reverse charge.

If a consignment’s value exceeds £135 then import VAT applies. If you’re registered for VAT for small business, you can account for import VAT using the “postponed VAT” accounting system which was introduced after Brexit and applies to import VAT on goods brought in from the EU or anywhere else.

This means that rather than paying the import VAT bill and claiming it back from HMRC later, you can declare it and reclaim it on the same VAT return, so there’s no impact on your net cash flow. Full details on postponed VAT accounting and eligibility are on the government website.

Workforce

One of the most widely discussed and debated aspects of Brexit has been its impact on the UK workforce and the ramifications for businesses looking to hire employees. In 2023, the academic think tank “UK in a Changing Europe” published its assessment of how Brexit and the end of free movement has impacted the labour market.

It found that “by September 2022, there was a significant shortfall of around 460,000 EU-origin workers”, disproportionately affecting less-skilled types of employment in sectors such as transportation, retail, construction and hospitality. 

The latter industry has been a particular focus of attention, with the BBC reporting in 2023 that hospitality vacancies had seen a 72% rise since Brexit, while the number of EU workers in the industry had fallen by 26%.

Such figures only represent the market during a precise time frame in the past, and will naturally fluctuate over time.

That said, it’s clear that the radically altered rules on immigration from the EU, and the post-Brexit focus on providing visas for “skilled workers” only, have significantly reduced the pool of workers available for front-of-house hospitality jobs, junior kitchen roles, and other jobs with salaries below the visa eligibility threshold.

This means that businesses in hospitality and other harder-hit industries have had to carefully consider their recruitment strategies in the post-Brexit context, with many focusing on improving their workplace culture in order to attract more British workers and boost employee retention.

Strategies include elevating salaries for traditionally less-well-paid roles like admin assistants, checkout assistants, waiters and cooks, providing extra training and other perks to motivate employees, and investing in new technology which can help staff manage business processes like taking orders and cashless payments.

Supply chains

Businesses involved in the production and/or sale of physical goods are particularly reliant on supply chains to provide raw materials and dispatch products to customers. In recent years, a number of factors have impacted supply chains serving Britain, including the Covid-19 pandemic, conflict in Europe, and of course Brexit.

This was underscored by research released in 2023 by the UK Trade Policy Observatory, which revealed that “supply chain issues” ranked alongside labour and skill shortfalls as the biggest challenges British businesses have faced as a result of the UK’s departure from the EU.

The supply chain issues include “shipping/transport issues and delays” and problems with “customs and border controls” stemming from increased bureaucratic procedures. This disruption perhaps explains why the government launched the SME Brexit Support Fund in 2021.

The scheme provided grants for businesses to spend on getting professional advice and training on how to manage customs processes and import/export related issues like VAT and rules of origin.

The SME Brexit Support Fund has since been discontinued, but its existence serves as a reminder that if you intend to trade overseas, gaining an in-depth knowledge of the formalities required for maintaining supply chains in the post-Brexit era should be part of your business plan.

The government checklists for importing and exporting goods which we referenced earlier provide invaluable information. Depending on what you trade and how large the consignments are, it may be worth investing in someone to deal with customs on your behalf, such as a customs broker or freight forwarder.

What is the benefit of Brexit for UK business?

Given the aforementioned complications stemming from red tape and recruitment challenges, it’s easy to see why the question “How does Brexit affect businesses?” is often cast in a negative light.

However, as time goes on, the dust continues to settle from the gargantuan overhaul of Brexit and businesses become progressively more used to post-Brexit regulatory frameworks, we’re likely to see less friction when it comes to key processes. 

It’s also worth briefly considering a few key business opportunities stemming directly from Brexit which have been widely flagged up.

New global opportunities

Since Brexit, the UK has inked free trade agreements with dozens of countries across the world (as well as with the EU itself).

While many of these agreements have been “rollovers”, meaning they replicate the terms of deals originally made when the UK was an EU member state, there have also been new deals, such as those struck with Australia and New Zealand, with the prospect of more to come.

Increasing numbers of trade agreements provide increased opportunities to sell to new international markets, which may be crucial when you’re planning how to scale a business. 

Greater demand for British suppliers

There have been indications that Brexit has made British businesses more competitive, with the increased red tape and costs associated with EU imports providing an incentive for people and organisations to use domestic suppliers instead.

Office for National Statistics data published in 2022 showed that supply chain issues had steered businesses in Britain towards “using more UK suppliers”, while more ONS findings released the following year showed that “nearly three-quarters of trading businesses with 10 or more employees reported that they were able to get the goods they needed from within the UK… without any form of disruption.”

While such sales patterns are prone to change due to numerous market forces, these findings emphasise how Brexit has cast many British businesses in a more attractive light, which is good to know whether you’re thinking of launching side hustle ideas or looking to become your own boss for good.