5 tax lessons for SMEs on Brexit’s 5th anniversary

Five years on from Brexit, small and medium-sized businesses continue to face challenges from its tax and trade implications. It was hugely divisive, dominating political debate with arguments about the myriad range of impacts raging to this day.

The Brexit transition period happened while the nation was still managing the pandemic, and given the global financial crisis, it’s challenging to isolate Brexit’s impact from the broader economic landscape.

However, at Xeinadin, we’ve worked closely with SMEs over the past five years to help them adapt and navigate obstacles. In doing so, we’ve seen first-hand the key lessons that have emerged. Here are five things businesses should keep in mind as they continue to adapt to the post-Brexit landscape.

1. Changing VAT rules

Following Brexit, managing VAT has become one of the biggest challenges for SMEs. Although systems such as the Import One Stop Shop (IOSS) and One Stop Shop (OSS) have simplified processes that would have otherwise been complex for the UK business trading with the EU, the increased administrative expenses associated with VAT registrations in multiple countries remain difficult.

Particularly for small businesses that are already stretched thin. It’s so important business owners seek out  regular VAT audits and professional advice to help prevent unexpected tax issues.

2. Workforce and payroll challenges

The UK’s departure from the EU, and subsequent end of free movement, has had a monumental impact on migration patterns. Under the new immigration framework, EU nationals are subject to the same visa requirements as non-European nations, meaning it’s become harder for workers who previously filled vital roles across all sectors in the UK to relocate.

Businesses must reconsider their employment practices and put in place tax-efficient payroll systems in light of work permits, PAYE considerations and the possibility of double taxation.

3. Customs and trade

Even with trade agreements, businesses are still facing higher costs due to customs documentation and changing regulations. These barriers are frequently leading to delays, extra costs, and unexpected tax issues.

A recent study by LSE found that Brexit has caused a £27 billion decline in UK goods exports, with small businesses feeling the impact the hardest.

In fact, businesses with fewer than 10 employees saw exports to the EU fall by 30%. In order to stay competitive, SMEs need to map their supply chains, guarantee accurate product classification and explore alternative methods to cut costs.

4. Regulatory changes

Before Brexit, the UK complied with EU-wide regulations on  everything from employment law,  to environmental and food standards to agriculture.

While Brexit gave the UK the ability to establish its own regulatory frameworks, the divergence from the EU has made things more difficult in the long run, introducing significant complexity for businesses, particularly SMEs.

New rules in areas such as VAT, customs duties and sector-specific compliance mean that business owners need to stay vigilant to avoid unexpected tax liabilities, especially in consumer goods and retail sectors.

In order to understand how regulatory changes affect their tax position, business owners – especially small business owners – should closely monitor these developments and seek expert assistance when necessary.

5. Strategic long-term planning

Brexit brought about a long-term shift in how businesses operate in the UK, and combined with the ongoing economic uncertainty, SMEs must take a proactive approach to tax planning to stay ahead of the curve.

Currency fluctuations, shifting trade agreements, and changes to tax treaties continue to impact business operations, making it essential for companies to reassess tax strategies regularly.

By regularly examining tax arrangements, maximising cash flow, and seeking expert tax guidance, small businesses will instill resilience into their operations and position themselves for long-term success.

It’s fair to say Brexit has fundamentally changed the UK business environment, and tax considerations remain a crucial part of the equation for SMEs. By staying informed and seeking expert advice, SMEs can plan ahead for tax consequences and businesses can successfully adapt and grow.