By Liz Armbruester
The UK recently shocked the world when its national referendum to leave the European Union passed with 52 percent of the vote. The unexpected result had immediate economic consequences: the British pound sank to 30-year lows against the dollar and yen, while stock markets tumbled globally.
[Read about selling globally: How to Sell Overseas: 5 Tips for Small Business]
The Brexit shockwaves have caused unease among many American small business owners—most notably, an escalating concern that the global economy now hangs in limbo. You could go so far as to call it Post-Brexit Uncertainty Syndrome. Symptoms include nail biting, indecision, and alternating between obsessively reading the news and studiously avoiding any mention of the vote. Left untreated, that anxiety can transition into full-blown paralysis, yet most business owners have no idea where to turn for a cure.
How to Cope with Brexit
For small businesses owners, especially ecommerce merchants already selling (or thinking about selling) to UK consumers, the anxiety lies with unknown costs: what happens when Brexit takes effect? What new regulations or tariffs will be imposed on trade? How will that affect landed costs (taxes + import tariffs + shipping charges) to UK consumers? Will that change a seller’s supply chain, and if so, how?
Here are five sensible strategies for treating your Post-Brexit Uncertainty Syndrome. These post-Brexit tips will help you navigate the Europe of the future without losing your head in the present. Click on the links below to go directly to a specific tip.
There’s never been a better time for the old British slogan. Panic helps no business, and it’s especially misplaced right now. So far, the UK has not developed a timeline for its EU divorce, and some observers believe a second referendum (allowing British voters a do-over that could lead to remaining in the EU) or “associate EU membership” is more likely than a full exit. The 80,000 pages of law and the long procedure needed to navigate the split should keep trade relations between the UK and EU intact for at least the next two years.
In fact Theresa May, Britain’s new prime minister (she replaced David Cameron in July), indicated that she will not activate Article 50—the legal trigger for separation from the EU—until Scotland’s position in the negotiation process is clear (Scotland voted to remain in the EU). British news outlet, The Independent, reported May as saying, “I have already said that I won’t be triggering Article 50 until I think that we have a UK approach and objectives for negotiations—I think it is important that we establish that before we trigger Article 50.”
This means that as of today, no one—not even the highest-ranking political authorities in the UK or EU—knows for sure whether Brexit will come to pass. While this adds to the uncertainty small business owners may feel in the wake of the vote, it also means there’s no need to jump headlong into the post-Brexit world.
In spite of the worldwide tumult caused by the vote, it’s business as usual when it comes to complying with international shipping and tax regulations—at least for now. While compliance obligations may change in the future, small business owners should refrain from making any alterations to their current strategies that could lead to an unpaid obligation later.
Failing to comply with import duties, tariffs, VAT, and other taxes can still land your business in hot water, whether or not Brexit moves forward. Regardless of what the future holds, automating compliance using cloud-based tools removes the guesswork by keeping rules and rates updated automatically.
If and when the Brexit split does take effect, it may create a number of compliance risks. For example, the UK may change tariff and VAT rates on a number of goods. Previously zero-rated B2B transactions between EU member states and the UK may become import transactions requiring payment of duties after Brexit is complete. Don’t bury your head in the sand about potential changes and risks. Change is difficult, but it’s easier when you approach it with an open mind and a willingness to examine the risks.
One of the biggest VAT-compliance changes for US-based companies applies to American businesses with an EU headquarters located in the UK. If such a company purchased EU-wide software licenses today, the purchase would be considered a zero-rated reverse charge. Once the UK is no longer part of the EU VAT regime, the company would have to pay VAT on that transaction.
If your business has partnerships with suppliers, manufacturers, distributors, or shipping companies abroad, it’s time to discuss how Brexit will impact your business relationship. Your overseas partners may be able to alert you to compliance hurdles specific to your business. By working together, you can pool ideas and resources in order to prevent any transit delays, compliance issues, or other interruptions to the flow of goods.
While American businesses are understandably nervous about Brexit, no one is more nervous than the Brits themselves. Keep communication lines open, and share your Brexit plans with customers and partners: in an environment where uncertainty can spook customers, there’s nothing more reassuring than transparency.
It’s easy to let fear and uncertainty get the better of us in times of significant change. But business owners shouldn’t forget that in some ways, Brexit could actually be good for American companies. Today, the UK’s relationship to the EU makes it preferable to purchase goods from other EU countries. If Brexit dissolves existing free trade agreements, and the UK is once again outside the EU VAT regime, American companies will no longer be on unequal footing with similar businesses in the EU.
[Don’t miss: A Guide to Protecting Small Business Tax Data]
This means that if Brexit proceeds according to plan, American businesses may find themselves in a more competitive position when it comes to establishing supplier and customer relationships. If, in the words of great British writer Rudyard Kipling, “you can keep your head when all about you are losing theirs,” Brexit offers untold opportunities for American entrepreneurs.
Liz Armbruester is the vice president of compliance operations at Avalara, a tax automation software company.
|Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!|