Brexit and small business: a deep dive into the real impact

Nine years on from the UK’s vote to leave the EU in 2016, we've put together a timeline of new regulations and fresh international tariffs that have marked a major shift in trade policy since that date. Daniel Woolf takes a deep dive.  

2016 – Referendum and market volatility 

The 23 June 2016 referendum triggered a sharp fall in the pound. For small businesses this cut both ways: exports became cheaper abroad, but imported inputs rose in price, hitting firms reliant on EU supply chains. More significant than the currency shock was the uncertainty. Small business confidence plummeted immediately after the referendum, falling into negative territory for the first time since 2012. A National Bureau of Economic Research (NBER) paper described Brexit as a “large, mostly unexpected” event that created a persistent drag on firms exposed to Europe, with the future trade relationship undefined. However, EU law continued to apply and no new tariffs or border checks were introduced. 

2017 – Article 50  

On 29 March 2017, the UK triggered Article 50, starting a two-year countdown with little clarity on future trading terms. Uncertainty quickly hit exports: one study found a 9.2% annual drop in services exports between 2016 and 2019, a loss of USD 146.8 billion. The study identified that small businesses were disproportionately affected, while many large firms shifted operations overseas. 
The Federation of Small Businesses (FSB) urged a “comprehensive free trade agreement” for the “easiest and least costly access” to the EU Single Market . An Ipsos survey found 82% of foreign Chambers of Commerce members were “not confident” in a positive outcome, while nearly one in four small businesses now viewed Brexit as a major obstacle (up from 16% in 2016). Around 77% of SMEs with plans to grow exports scaled those plans back amid the uncertainty.  

2018 – Deal or no deal? 

By 2018, stalled talks and the risk of “no deal” hit confidence hard. The FSB’s Small Business Index fell to its lowest point since the financial crisis, and expectations for export growth dropped to their weakest since the index began in 2012. 

Parliament passed the European Union (Withdrawal) Act 2018, repealing the European Communities Act 1972 and converting all existing EU regulations into UK law as “retained EU law”. 

With the first Brexit deadline looming (March 2019), UK manufacturers – many of them SMEs – resorted to stockpiling goods to hedge against potential border chaos. Export orders dropped sharply in late 2018 as EU buyers grew cautious. 

2019 – The cliff-edge

As the Brexit deadline neared, government issued a “No-Deal Readiness Report” and held business briefings, while securing multiple extensions that pushed exit to 31 January 2020. Yet SMEs were largely unable to prepare. An FSB survey found only 21% of firms expecting a negative impact had made preparations. Most (63%) said they could not plan at all, citing lack of information and shifting deadlines. 

Those who did prepare incurred an average cost of about £3,000 on extra stock, legal advice, new paperwork systems, etc., and a third saw their profitability decline due to these Brexit preparations. Some resorted to stockpiling, temporarily lifting EU imports in 2019. 

2020 – Transition: The Covid years

The UK left the EU on 31 January 2020, entering an 11-month transition where trade continued unchanged. A Trade and Cooperation Agreement (TCA) was struck only on 24 December, published five days before taking effect. For SMEs this last-minute deal collided with the COVID-19 pandemic, creating a perfect storm.

2021 – Brexit arrives: trade collapse and red tape

On 1 January 2021 the TCA took effect, introducing new customs checks and paperwork. EU import rules now applied to UK goods. While the deal allows zero tariffs and quotas on UK–EU trade if rules of origin are met, UK exporters faced new customs declarations, regulatory conformity checks, and other border formalities when selling to the EU. In addition, the EU introduced new VAT e-commerce rules on 1 July 2021, abolishing the €22 import VAT exemption – meaning all goods exported from the UK to EU consumers now incur VAT in the destination country (even low-value parcels). 

The impact on small exporters was immediate. LSE analysis of 100,000 firms found that 14% of previous EU exporters stopped altogether, with smaller firms hardest hit. For those that continued, export values fell sharply, down 30% for the smallest firms and 15% for mid-sized ones. HMRC data show the number of UK businesses exporting goods to the EU fell by 33% in 2021 (dropping from over 27,000 in 2020 to about 18,000 in 2021).

An Aston University study showed UK–EU exports dropped 22.9% in the first 15 months, with 42% of product varieties disappearing. Low-volume and niche products, often exported by micro-firms, were the first to vanish. The Institute of Directors noted many small firms “pulled out of the EU as a market altogether”. 

Certain sectors dominated by small exporters were especially devastated – for example, seafood companies saw exports of fish and shellfish to Europe collapse by 83% in that first month due to new health checks and customs. 

2022 – UK Customs controls 

The UK government implemented full customs controls on imports from the EU from 1 January 2022, ending the grace period that had allowed delayed import declarations in 2021. EU suppliers now had to submit complete declarations and pay tariffs at the point of entry, as with the rest of the world. 

In early 2022, 60% of exporters reported struggling with costs, paperwork and delays, with smaller firms lacking the staff or money to adapt. 

Trade data reflected these struggles, showing UK exports to the EU remaining 20–25% below pre-Brexit levels. 

2023 – Free trade agreements: Pivoting to other markets 

New post-Brexit trade agreements took effect – notably the UK’s free trade agreements with Australia and New Zealand entered into force on 31 May 2023, eliminating virtually all tariffs on UK goods exported to those countries and easing other trade restrictions. 

But by 2023, Brexit’s impact on SME trade had become an enduring reality rather than a one-off shock. UK goods exports to the EU consistently trended below pre-Brexit levels, while SMEs scaled back their European business. Many pivoted to other markets, but the EU shortfall remained. The variety of products Britain sells to the EU also shrank by about one-third, showing how niche SME exporters had exited the market. 

2024 – Trade block ratification

The UK and EU jointly agreed to delay stricter rules-of-origin requirements for electric vehicles, avoiding a new 10% tariff that would otherwise have applied to UK–EU electric car exports from 1 January 2024; the existing zero-tariff threshold for EV batteries and components was extended, postponing any such tariffs until 2027. Additionally, the UK’s accession to the CPTPP trade bloc was ratified (with the agreement entering into force by 15 December 2024), which is projected to make over 99% of UK goods exports to those 11 Pacific Rim countries tariff-free.

In 2024, goods exports to the EU remained 18% below 2019 levels, while services exports rose 19% above that baseline, highlighting that product-focused SME exporters remain disproportionately affected.  

Exports of food and drink to the EU dropped by 34% since Brexit, underscoring the burden of post Brexit bureaucracy on SME producers of goods like whisky, chocolate, and cheese.  

2025: A perfect storm of new regulations 

From August 29 2025, the US will scrap the $800 de minimis exemption, meaning every UK parcel now attracts duties. President Trump’s tariff package added a 10% baseline on most UK goods and 25% on cars, steel and aluminium. Surveys showed more SMEs reporting falling overseas sales than rising ones. 

In Europe, a new UK–EU agreement in May reduced checks on plant and animal goods, offering relief to food exporters. But from September, the EU’s Import Control System 2 will require advance safety declarations for all UK exports, adding another compliance burden. 

In mid 2025, only 24% of SME exporters reported increased export sales, while 26% saw a decline. Micro exporters fared worse: only 20% increased orders, while 29% decreased.  

Progress: Where are we now and where do we need to be?  

The government’s new trade strategy responds to several issues raised by Enterprise Nation and others: clearer digital guidance and an expanded UKEF offer. It also links SME support to border modernisation through the Single Trade Window and pilots to cut paperwork. 

Yet gaps remain. Government has not reinstated the Tradeshow Access Programme or introduced an export tax credit. On UKEF, there is no numeric target or resourcing pledge to reach more SMEs. And while ministers are vocal on free trade, the strategy does not commit to SME-specific chapters in trade deals or to pragmatic easing of EU non-tariff barriers. 

If digitisation, UKEF changes and advisory integration land well, they will reduce day-to-day friction. But without targeted market-entry support and fiscal tools to offset set-up costs, many SMEs will still conclude exporting is not worth it. Success will mean more SMEs exporting again, fewer dropping out, and fewer citing paperwork as the reason why. 

Recommendations 

1. Simplify and digitise: speed up delivery of the single trade window and simplify rules of origin to cut admin costs. 

2. Pursue regulatory alignment: reopen talks on mutual recognition of professional qualifications to support service exporters. 

3. Target SME support: fund clear, accessible advice and practical financial help, so smaller firms can navigate export rules and access both EU and non EU markets. 

You can read more about exporting from the UK from the Department for Business and Trade export champion Tajinder Banwait, founder of Urban Apothecary.