What the Brexit withdrawal agreement means for small businesses

What the Brexit withdrawal agreement means for small businesses

Posted: Thu 15th Nov 2018

The European Union published a draft agreement on the UK's withdrawal from the European Union yesterday clarifying how the deal would impact exports.

We've looked through the epic 585-page document which sets out the approach to the Northern Ireland border, exporting, immigration, access to VAT MOSS and more.

It also provides good news for Cornish pasty sellers. Read to the end of the post to find out why!

Interestingly, the term 'small business' is not mentioned at all in the documents although 'business' is mentioned eight times.

But there is lot of interest to small business owners which we've outlined below.

Transition period

The document confirms that the transition period, during which the UK will continue to follow all European Union rules and to allow time for the UK and the EU to reach a trade deal, is 21 months from 29 March 2019 which means it ends on 31 December 2020.

However, the EU draft withdrawal agreement does allow the transition period to be extended.

The exact date is not confirmed though and only says that the Joint Committee may take a decision "extending the transition period period up to [31 December 20XX]".

This could be seen as positive for small businesses trading with the EU who will continue to enjoy the benefits plus more time to adapt to anything that changes post-transition.

European funding: When does it end?

There has been much discussion over what happens to European funding. Britain currently receives £1bn a year from the EU. The government has said it will replace the funding with a new UK Shared Prosperity Fund.

A European Commission factsheet on the withdrawal agreement states: "All EU projects and programmes will be financed as foreseen under the current Multiannual Financial Framework (2014-2020). This provides certainty to all beneficiaries of EU programmes, including UK beneficiaries, who will continue to benefit from EU programmes until their closure, but not from financial instruments approved after withdrawal."

But in the full document though it refers to projects "ongoing at the end of the transition period until their final maturity, disposure, or completion".

Does the inclusion of the word "disposure" mean some schemes will be shelved early?

Small businesses need to know what the government is doing about the Shared Prosperity Fund and whether it will cover all previous funding.

Avoiding a hard border between Northern Ireland and Ireland

The border between Northern Ireland and Ireland is a significant point of discussion. A so-called "hard border" with checks or physical infrastructure would have a significant economic impact.

The UK and EU want a trade agreement to keep the border as open as it is now. They are also working on a guarantee to avoid a hard border - the so-called 'backstop', which is a reference to a baseball term. It's a legal guarantee to avoid a hard border under all circumstances and has to be agreed before Brexit deal is signed.

The draft document says the backstop - which it refers to as a "single customs territory" - will be in place from the end of the transition period until a long-term agreement is reached.

"Until the future relationship becomes applicable, a single customs territory between the Union and the United Kingdom shall be established," it says adding that both parties will "use their best endeavours" to come to a permanent arrangement by 1 July 2020.

The backstop would mean Northern Ireland stays aligned to some rules of the EU single market.

Guidance from the EU says that some checks will still need to take place: "There would be a need for some compliance checks with EU standards, consistent with risk, to protect consumers, economic traders and businesses in the single market."

What does it mean for small business exporters?

The Brexit agreement says goods lawfully placed on the market in the EU or the UK before the end of the transition period may continue to freely circulate in and between these two markets, until they reach their end-users, without any need for product modifications or re-labelling.

This means that goods that will still be in the distribution chain at the end of the transition period can reach their end-users in the EU or the UK without having to comply with any additional product requirements.

The agreement also outlines time limits for when exporting situations and custom procedures will end. It includes:

Union transit: Maximum 12 months after the end of the transition period
A customs procedure that allows good not in free circulations in the EU to move between two points within the EU with customs duties or other charges suspended. This applies to countries such as Iceland, Norway and Switzerland but it also applies to 'special territories' including the Channel Islands which means businesses there are affected.

Customs warehousing: Maximum 12 months after the end of the transition period
Allows traders to store goods with duty or import VAT suspended

Temporary admission: Maximum 12 months after the end of the transition period
Temporary admission is useful if you temporarily import goods such as samples, professional equipment or items for auction, exhibition or demonstration into the UK. As long as you do not alter the goods while they're within the EU, using TA should mean you will not have to pay duty or import VAT.

Re-export: 150 days after release
Re-export is when one member of a free trade agreement charges lower tariffs to external nations to win trade, and then re-exports the same product to another partner in the trade agreement. For example, France exports grain to the US but exports it to the UK first and we then export it to the US because we have a lower tariff agreement. This is the EU ensuring the UK doesn't secure better trade deals than the EU with other nations and still benefits from EU agreements.

Immigration impact on small businesses

For businesses employing EU workers, the documents says EU citizens and their families will have the right to live and work in the UK (and vice versa) until the end of the transition period in December 2020.

EU citizens who take up residence before the transition period end can remain beyond transition, remain permanently if they stay for five years.

After the transition period, the agreements allows the UK to require EU citizens who stay on to apply for a new residence document. This also applies to UK citizens in EU countries.

Importantly for businesses, a separate 'Outline Political Declaration' from the UK government says the UK and the EU will aim to achieve arrangements for temporary entry for "business purposes" and visa-free travel for short-term visits.

Small business' access to VAT MOSS

The draft agreement sets out plans for the UK's access to IT systems including VAT Mini One Stop Shop (VAT MOSS). Businesses will be able to register until 31 December 2020 and accessing information until 20 February 2021.

There is no VAT minimum threshold for cross-border supplies of digital services and VAT is charged at the rate due in the consumer's country, impacting lots of small businesses. VAT MOSS allows UK businesses to pay VAT to HMRC instead of having to register for VAT in up to 27 other member states, reducing the amount of compliance.

Intellectual property protected under Brexit agreement

The protection afforded to existing EU unitary intellectual property rights (trademarks, registered design rights, plant variety rights etc.) in the UK will be maintained but the rights will become national intellectual property rights rather than EU rights.

The documents says the conversion of the EU right into a UK right for the purpose of protection in the UK will be automatic, without any re-examination and will be free of cost.

The EU said: "This will ensure the respect of existing property rights in the UK and provide for the requisite certainty in respect of users and right holders."

An IP expert however tweeted us with a note of caution:

Excellent to see summary focused on small businesses. On IP, care needed by businesses holding pending, non granted EU rights at end of transition period as ongoing UK rights will not be automatic and will need businesses to apply for ongoing rights. Process but no auto notice

— Tracy_Arch_IP (@101blod) November 19, 2018

Cornish pasties stay Cornish!

The European Union protects more than 3,000 geographical terms such as Parma ham, Champagne and Cornish Pasty, the latter of which became achieved the status in 2011. The withdrawal of the UK from the European Union will not lead to any loss of those intellectual property rights, according to the draft agreement.

"Geographical indications have an important value for local communities, both economically and culturally. Each indication protected in the EU represents an agricultural, food or drink product with deep local roots, whose protection under EU law has generated significant value for its producers and the local community," the European Commission's factsheet says.

This agreement will also benefit the geographical indications bearing a name of UK origin such as Welsh lamb.

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