4 minute read 7 Apr 2021
Man doing boating

How UK businesses are responding to post-Brexit trade

Authors
Sally Jones

EY UK Trade Strategy and Brexit Leader

Trade Strategy Partner. Helping companies and governments enhance trade. Mother of three. Astronomer.

George Riddell

Trade Strategy Director, Ernst & Young LLP

Helping companies and governments enhance their international trade. Passionate about ocean conservation and an avid scuba-diver.

4 minute read 7 Apr 2021

EY and London First’s survey assesses Brexit-related operational disruption and its implications for long-term business outlook.

In brief
  • Three quarters of businesses surveyed experienced some degree of disruption following the end of the transition period, and half of those expect it to continue over the long-term.
  • Supply chain, customs, tax, VAT and regulatory change were the most common areas causing disruption.
  • The impact of Brexit may not yet be fully realised for businesses which rely on attracting EU talent or business travel to the EU; this is particularly true for regulated services.

The end of the Brexit transition period has forced UK businesses to adjust to significant change in the international trading environment, which has been further complicated by the COVID-19 pandemic. Research by London First and EY has found that despite preparations, 74% of businesses surveyed have experienced disruption to their operating model. The research shines a spotlight on the issues causing disruption, how businesses perceive their operations will change as a result and the support being requested to successfully adapt.

Supply chain and customs

Of businesses experiencing disruption, 72% faced problems with supply chain and customs – of these 42% experienced delays. Other common impacts cited were an increase in the cost of sourcing components, and increased paperwork resulting in higher costs and longer transportation times. 

EY and London First survey

72%

of businesses faced problems with supply chains and customs

Marc Bunch, EY UK Global Trade Leader comments: “New customs arrangements have resulted in significant delays at borders. Businesses can take steps to identify where these arrangements are having a material impact on operations and explore opportunities to remedy these situations.”

Tax and VAT

The second largest area of disruption has been tax and VAT changes, with a wide range of problems reported. 36% of businesses said that VAT disruptions have negatively impacted trade, mostly based on increased compliance obligations and costs in time. However, almost a third of businesses reported increased cash flow and 23% said VAT disruption had positively impacted trade.

Andy Bradford, UK Brexit Indirect Tax Lead comments: “Although businesses have dedicated more resources to understanding the VAT rules, many have found the benefits to this, reviewing VAT return periods to mitigate cash flow issues. Business may be able to benefit from this further by expanding these reviews to their wider compliance position.”

Talent and workforce

As a result of the UK’s new points-based immigration system, 22% of businesses reported difficulties in attracting foreign workers to the UK. Additionally, 41% of businesses believe they will be impacted by new restrictions on the activities UK nationals can undertake whilst in the EU without a work visa or permit.

The ongoing COVID-19 travel restrictions somewhat limit the interpretability of mobility issues caused by Brexit. As restrictions lift, more businesses are likely to see the impact of Brexit-related mobility issues. There is an opportunity for businesses to use this time to prepare their post-pandemic workforce strategy, learning from organisations that have already faced disruption due to the new rules governing the movement of workers between the EU and the UK.  

EY and London First survey

41%

expect to be impacted by new restrictions on the activities UK nationals can undertake whilst in the EU

Seema Farazi, Partner, Financial Services, Immigration and Brexit comments: “As businesses navigate new rules on travel and immigration, which differ by each Member State, they should use this time to review their immigration strategy and workforce planning to optimise where and how their employees are deployed.”

Pressure on businesses’ cost base

Trading environment changes have impacted the cost base of business overall. For roughly one-third of the businesses, their cost base has increased – this was greatest for large (42%) and mid-sized businesses (35%) due to their higher levels of complexity and increased exposure to international trade. When asked how they’d respond to an increased cost base, many businesses were considering passing on these costs to their customers but also to streamline operations or renegotiate contracts with suppliers.

Euan Holms, EY EMEIA Commercial Transformation Partner comments: “Executing a pricing strategy aligned with long-term goals and taking into account Brexit and COVID-19-related operating model impacts will be critical. Failure to do so, particularly for those who are part of longer value chains, will pose material risk.”

Opportunities for businesses

Preparing for Brexit gave almost a third of organisations unprecedented insight into their operating model and, for over a quarter of respondents, their understanding of how to access new markets improved. There was clear demand from businesses for stronger trade agreements with countries outside the EU and for financial support to adapt to the new requirements. 

Support EY can offer

  • Analysing the UK’s new trade agreements, identifying the rules applicable and what they mean in practice.
  • Assisting in developing and reviewing international trade strategy, conducting market access reviews alongside economic analysis of potential opportunities.
  • Carrying out supply chain analysis to identify cost savings and the impacts of a change in trading arrangements.
  • Reviewing immigration strategy and workforce planning to optimise where and how employees are deployed across Europe, including compliance for ‘work anywhere’ policies.
  • Monitoring international trade developments and their impact on operating models. 

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Summary

For businesses operating in, and across the UK, Brexit has created significant disruption and challenges to how they operate and trade. It is also clear that UK businesses are resilient, innovative and working hard to adapt and overcome these challenges, while at the same time seizing new opportunities.

About this article

Authors
Sally Jones

EY UK Trade Strategy and Brexit Leader

Trade Strategy Partner. Helping companies and governments enhance trade. Mother of three. Astronomer.

George Riddell

Trade Strategy Director, Ernst & Young LLP

Helping companies and governments enhance their international trade. Passionate about ocean conservation and an avid scuba-diver.