The UK has now triggered Article 50 of the Lisbon Treaty and has two years to complete negotiations and leave.
This process could be extended with the approval of all of the other 27 member states. However, both the EU and UK Government have indicated that they intend to complete the process by the deadline in 2019.
Article 50 states: “In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.”
The EU Council’s guidelines, adopted in March this year, state that the talks should be conducted in two phases. The first covers the technical divorce, including citizens’ rights, the Brexit bill and Ireland.
Only once “sufficient progress” has been made on these issues - something which can only be judged by the EU27, can discussions begin on a future partnership including trading arrangements.
It is not yet fully clear whether the UK will remain in the single market. However, the current UK government has articulated that it wishes to leave the single market and will rely instead upon a bespoke trade deal with the EU, which is yet to be negotiated. To assist businesses there may be a period of transition after Brexit to help them adjust.
At present, the only way to be in the single market is to be part of the European Economic Area (EEA), either as a member of the EU or a member of the European Free Trade Association (EFTA).
However, the UK may decide to choose to trade by the rules stipulated by the World Trade Organisation (WTO). This would avoid the complexity of creating a new free-trade agreement, but would also remove any favourable relationships Britain has with the EU or any other trading bloc.
The economic impact of Brexit is difficult to accurately assess. However, the strong consensus amongst the majority of economists and research institutes suggests that Brexit will negatively impact the British economy, at least in the short-term.
A lot still remains unclear about the future of UK trade and much will rely upon the government’s ability to maintain a relationship with the Single Market, either by remaining a part of it or establishing a close partnership with it.
If the government fails to reach an agreement on this issue before the UK leaves the EU, the country may find itself in a position where it has to re-affirm or renegotiate trade agreements with all 27 member states.
In the meantime, the lower price of the pound against the euro and the dollar means that there may be an opportunity to make British goods and services more competitive.
While exports will benefit from the weakened pound, the opposite is true for imports and businesses reliant on the import of raw materials or components from foreign suppliers may find that their costs increase as a result.
If the UK leaves the EU without securing an agreement on a new relationship, UK trade relationships with the EU would be governed by WTO rules, under which EU member states would be obliged to charge tariffs on UK goods at the rates agreed for WTO members that do not have a preferential scheme or trade agreement in place with the EU.
If the EU were to waive those rates for the UK, it would also have to waive them for the same products for other countries.
The UK would also have to charge WTO rates on goods it imports from the EU. However, it could waive tariffs on imports from the EU, but would also be obliged to waive the same tariffs for products for all countries in the world with which it does not have a trade agreement under the WTO’s rules
Much was promised in the run up to the referendum about businesses seeing a reduction in red-tape and bureaucracy following a vote to leave. However, many of these issues may persist after Brexit, especially if businesses wish to trade with other EU member countries.
Many of the strict guidelines will still need to be adhered to if a company wishes to sell its product into the member states. Products sold into any nation around the world must meet those countries guidelines so many of the former processes and administration will still need to take place.
Most of the UK’s Double Tax Treaties, which are extremely important to overseas investment in the UK, contain their own provisions that prohibit a country from imposing tax measures that may discriminate against a person or company from another state so these are unlikely to be affected by Brexit.
Following a proposal unveiled by Theresa May, any EU national who has lawfully resided in the UK for at least five years will be able to apply for ‘settled status.’ They will also be entitled to bring over spouses and children.
The Prime Minister has stated that this deal must be reciprocal in order to give reassurance to the 1.2 million Britons who are currently living in EU countries.
The UK’s proposals include
- Anyone granted settled status will be able to live, work, study and claim benefits – as per the current situation
- The cut-off date for eligibility is still to be confirmed but will be between 29 March 2017 and 29 March 2019
- Family members of EU citizens living abroad will be allowed to return and apply for settled status
- EU nationals in the UK for less than five years at the specified date will be able to continue living and working in the UK
- Once resident for five years, they can apply for settled status
- Those arriving after the cut-off point will be able to stay temporarily but with “no expectation" of being granted permanent residence
- The Home Office will no longer require evidence that EU citizens who weren't working held "comprehensive sickness insurance"
As the negotiations on Britain’s exit begin we may begin to see some discussion about the future of VAT, which is a Europe wide tax that is bound by the EU VAT Directive.
This set of European rules has limited the UK’s ability to set its own VAT rates and reliefs. However, post-Brexit the government may find that they are free to decide their country’s own rates of VAT and we may see a divergence from EU practices.
Many businesses will be focusing on their own business when it comes to the issues raised by Brexit, but it is important to consider how it will affect your suppliers.
If part of your supply chain is reliant on businesses that import raw materials and components from overseas then you need to be prepared for an increase in costs that may be passed on to you and your business as a result of the weaker pound.
Businesses are likely to be under stress over the next few years due to the uncertainty they are facing, the collapse or financial difficulties of a supplier are often passed up the supply chain, so it is best to prepare your business for this.
Over the last few decades the EU has provided a significant amount of funding in the form of grants and subsidies, particularly in areas such as farming and manufacturing.
During the next two years these arrangements should remain in place. However, whether all of these arrangements will be maintained once the UK is ‘independent’ is not clear. If you are unsure whether you will lose funding it may be beneficial to explore whether leaving the EU will allow the funder to terminate the agreement you hold with them.
If it does allow them to end the funding then it may be best to seek alternative finance elsewhere or adapt your plans to adjust for a decline in income.
Our general advice is to seek assistance as and when changes occur. Ensuring you have the right professional adviser on your side that understands your needs should be your first priority.
For many the best approach may be to continue on with ‘business as usual’ but with an eye on unfolding events.
We aim to regularly keep you up to date with the latest issues affecting British businesses.
If you have any immediate concerns our team at Haslers are here to help you with advice and practical support, so please contact us.