Posted by Nicola Cutler, Associate
What would Brexit mean for SMEs in the UK?
With less than two months to go until the referendum on 23 June, politicians, businessmen, newspapers, celebrities, the US President and everyone in between are taking to the streets to shout about their views. But are we really any wiser about why we should vote ‘stay’ or vote ‘leave’? And what would be the day-to-day impact on SMEs?
UK laws and the EU
The big question for all of us is how would a Brexit affect me and my family? For many of our clients the next question is how would it affect my business?
Let me manage your expectations at the outset – what we do know about a Brexit is that we don’t know what will happen next. I’m sorry but I can’t give you all the answers but then again neither can David Cameron, Boris Johnson or anyone else. The best we can all do is make an informed decision based on gut instinct, educated guess work and informed speculation.
The uncertainty around the future is driven by the now infamous Article 50. If the majority of UK voters tick the “leave” box and Article 50 is triggered there would then be a two year deadline for the UK to negotiate the framework for our future relationship with the 27 remaining EU member states.
For now, it is unclear what those negotiations, the interim provisions and the eventual outcome, will look like for the UK. The decision could ultimately impact on issues much wider than the cornerstones of the free market, i.e. the free movement of goods, services, capital and labour. As it stands, the legal relationship with the EU requires UK domestic legislation to harmonise with the EU position across issues such as employment law, health and safety regulation and much more. Upon terminating our relationship with the EU (at least as we know it), UK policy on these issues could change.
That being said, in the event of a Brexit the existing rules of EU law would continue to apply until the terms were finalised and made legally binding, so in that sense there would be no immediate change to any legislation that is derived from the EU.
Issues for SMEs
Notwithstanding the legal technicalities of how a Brexit would take shape, eventually some changes would come about and are likely to have some impact on the day-to-day running of your business. The following are some of the key considerations for SMEs and business owners.
- Contractual arrangements – a Brexit would inevitably lead to arguments about interpretation of contractual arrangements entered into between UK and EU businesses before the change. I would suggest that commercial agreements will need to be amended to protect parties from the risk of disputes arising.
- Getting paid – currently, all UK businesses benefit from the EU’s Late Payment Directive which is essential for day-to-day cash flow. An exit could change the way commercial debts can be enforced against other UK and EU businesses.
- Dispute resolution – suing and enforcing judgments against businesses outside the UK could be more complex if we leave the EU. This will work both ways and as a result stricter credit arrangements are likely to be imposed by EU suppliers.
- Trade – there could be greater levies on inter-European trade deals if access to the free market is restricted, although there may be greater opportunities for developing relationships with markets further afield such as America, Africa and China.
- Employees – an exit may make it more difficult for your overseas employees to stay in the UK and there may be restrictions on how regularly UK based employees can travel to Europe for work. However, a revised migration policy is unlikely to severely limit skilled worker migration to the UK and could open doors to economic migrants from other parts of the world.
- Funding and grants – many SMEs receive grants from EU supported sources which may not be replaced by the UK government. These businesses will need to think carefully about whether this income stream can be replaced or if they could cope without it.
- Lending – economic uncertainty tends to hit SMEs harder than larger businesses as they are seen to be a greater risk in terms of lending. Whether the UK votes in or out there will be increased uncertainty leading up to, and after the referendum. SMEs should be prepared for a restricted lending market in the short term at least.
A Brexit will inevitably bring some change and uncertainty for the UK economy, which could impact disproportionately on SMEs. The long term consequences are difficult to predict but the immediate changes are likely to mean some shake up for your business. It is up to you to decide if the long term outcome would be more beneficial to your business’ industry and sector than sticking with the status quo.
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