EU: the UK has voted to leave but what does this mean for SMEs?
You will have seen this morning that despite our poll reflecting a majority of 52.75% remain, the country has decided to leave the EU at a result of 51.9% leave, 48.1% remain. Furthermore, we have seen the announcement of David Cameron’s resignation, who will stand down as Prime Minister at the Conservative Party Conference in October. The immediate thought of many SMEs and owner-managed businesses will be on the impact of this historical outcome.
Our Managing Partner, Maureen Penfold says that the speculation is now over. Hard-hitting concerns over immigration, human rights, democracy and sovereignty have been at the forefront, rather than economic and trade issues which has led to the UK voting to leave the EU. It is natural to feel some concern over the uncertainty that will ensue – both domestically and with regards to our place on the world stage.
While entrepreneurs and owner-managed businesses take time to assess the implications, we know that UK SMEs are resilient and seize opportunity in the face of change. Business will continue as usual, because in reality, Brexit will not happen overnight. The bureaucratic upheaval involved and the procedural changes that come from withdrawing from the EU will be a gradual process as changes to legislation and regulation continue to unfold slowly in the coming months and years. SMEs should keep their eye on the ball as adaptability and stability are key right now.
There are a number of potential tax positives to Brexit for SMEs comments Tim Stovold, our Head of Tax. The EU has limited how generous the UK can make a number of its tax relief schemes such as Research and Development and Patent Box tax relief, which fall under the EU State Aid rules. Becoming free of these rules enables the UK government to increase the attractiveness of these schemes to support local businesses and encourage overseas investment in the UK.
Additionally, simplification of the Enterprise Investment Scheme and Seed Enterprise Investment Scheme would be a huge benefit too. Both schemes have become increasingly more complicated for SMEs to use as a way of raising equity investments, in order to comply with EU rules. The departure from the EU gives the UK government the opportunity to re-design these schemes, and implement a system that is simple to operate and beneficial to those using them.
Adrian Houstoun, our VAT Partner says that many UK businesses are likely to face greater VAT compliance from the loss of intra community reliefs. At present the standard rate of UK VAT has to be a minimum of 15% and with up to two lower rates with a minimum of 5%. After leaving the EU the UK will be free to set rates as it chooses. In 2014/2015 VAT contributed nearly a quarter of the UK’s tax revenue so it is unlikely that there will be major changes to it, although the UK government would be free to abolish VAT and introduce a goods and services tax instead. Other potential areas that may be affected by VAT changes include legislation and VAT recovery.
Tessa Park, our Technical Partner comments that from a financial reporting perspective, the impact of leaving the EU is not likely to be felt immediately. New auditing, ethical standards and financial reporting changes brought in as a result of the EU Audit Regulation and Directive could possibly be reversed. However, I would be extremely surprised if anything were to change in the short to medium term; not least because there might be a perception that the UK had less stringent standards than the rest of Europe.
Major change brings opportunity as well as risk, be it from a strategic or a technical perspective. The professional services industry may be impacted from a recruitment perspective, given the intense demand for talent in London. For the sports enthusiasts who are wondering about the impact of Brexit on football and rugby clubs – they will need to consider the employment status of their European players and consider reducing the length of contracts offered to new players in the future if employment restrictions are enforced.
As always, we are here to work closely with you on evaluating any potential impact that you face or any concerns you have and would be pleased to assist you in planning for your future. The UK is still a great place to do business and this will not change in the long term.