Brexit and international trading problems

Brexit and international trading problems

Since the transition period ended in 2020, UK businesses have been forced to adjust to the significant change in the international trading environment brought on by Brexit – which has been further complicated by the challenges of the Covid-19 pandemic.

Now more than a year on, businesses continue to face problems with supply chains and customs, that continue to delay goods and increase costs.

This has had a wider impact on the UK economy, including an increase in the cost of sourcing components and increased paperwork, resulting in higher costs and longer transportation times.

Trading environment changes have impacted the cost base of business overall due to their higher levels of complexity and increased exposure to international trade.

To respond to an increased cost base, many businesses have considered passing on these costs to their customers, alongside streamlining operations and renegotiating contracts with suppliers.

In some cases, businesses have even moved part of their operations to EU member states to reduce the impact of Brexit.

The complex rules surrounding VAT have only further complicated matters and the burden of the new trading requirements have led the Government to delaying the full implementation of customs checks and requirements, from June 2021 to January 2022, to give businesses more time to prepare.

VAT disruptions have negatively impacted trade, mostly regarding increased compliance obligations and costs in time.

However, things are improving with almost a third of businesses reported increased cash flow and many businesses reporting that VAT disruption had positively impacted trade.

Businesses still face issues with their supply chains though. In March of last year, the entire UK material supply lines were put on pause for a few weeks, partially as a result of the pandemic, but worsened by the impact of Brexit.

While headlines were dominated by the lack of toilet paper and pasta that many consumers faced, the manufacturing and construction sectors lacked in plasterboard, cement and many other essential raw materials.

The result of this was that the prices of these products shot up rapidly as availability decreased. This added additional costs to many manufactured goods at a time when businesses were already beginning to struggle.

Brexit has lengthened the supply lines for several core supplies from Europe. A significant majority of materials required by UK trade and construction are manufactured or processed in mainland Europe.

As the pandemic swept the continent almost all major countries suffered shortages in stock. Now, manufacturers are refilling the supply chains that are closer to home first, with the UK falling to the back of the queue.

While this should ease over time and it is encouraging to see several efforts to move material production to the UK, there is no quick fix.

Another issue that many businesses face is the Government’s new immigration processes and policies. As a result of the UK’s new points-based immigration system, difficulties arise in attracting foreign workers to the UK.

Additionally, businesses believe that they will be impacted by new restrictions on the activities UK nationals can undertake whilst in the EU, without a work visa or permit. As Covid-19 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.

It is easy to look at the events of Brexit and the subsequent issues with international change and only focus on the negatives. Nevertheless, recent research has shown that some businesses have used this event as a learning experience.

Researchers have found that preparing for Brexit gave almost a third of organisations unprecedented insight into their operating model and, for over a quarter of respondents, improved their understanding of how to access new markets.

It has also seen the forging of new relationships and partnerships with countries outside the EU, which is already offering new opportunities for growth and trade.

To help make the most of these opportunities and the challenges of Brexit, the Government has been offering helpful guidance. They have recently launched a dedicated fund to help SMEs access professional advice on international trade.

To find out how we can help, please contact our Accounts Specialist, Jacqueline Walmsley, on jacqueline.walmsley@benson-wood.co.uk  or at 01236 756161

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