How Brexit Is Affecting Service – Elliott Winner Shares His Thoughts

UK Trade & Services - How Brexit Is Impacting

As supply chain issues, stock shortages and energy price increases dominate news proceedings, the future of the UK trade and service industries have a looming dark cloud cast over it. Many businesses are under extreme pressure to be able to sustain their operations without losing revenue as concerns grow.

We spoke to one of our financial partners, Elliott Winner of KWM Wealth Ltd., about how Brexit has affected UK trade, the different tax implications depending on the service or business, and what can be done to tackle the skills gap reduction.

 

How has Brexit affected the trade and regulation of services between the UK and the EU?

If you own or run an SME that supplies services from the UK to the EU, or one that buys services from an EU company, the good news is that there has not been too much disruption to business. Unlike trading in goods, which the government’s EU Goods Sub-Committee described as “not simple” under the EU-UK Trade and Cooperation Agreement, the trade of services remain largely unaffected.

This provides an exciting growth opportunity for early-stage businesses looking to expand their customer base as the global economy emerges from the COVID-19 pandemic.

 

How important is the UK service industry for the rest of the EU?

The lack of attention on the post-Brexit environment for trading services is surprising, given the service sector’s fundamental importance to the UK economy. In the period January to March 2021, the service industry accounted for 80% of the country’s total economic output and 82% of its domestic employment, according to government figures.

Furthermore, the UK is the world’s second-largest exporter of services and the EU is the largest recipient, receiving the equivalent of 40% of the UK’s total services exports, according to ONS statistics. These include sectors such as digital, financial, legal and business services, highlighting the vast reliance from both the UK and the EU on these services.

 

What are the different types of services available and what are the tax implications associated with them?

Business to Business (B2B) services – No UK VAT chargeable for services supplied to businesses outside of the UK, including the EU.

Business to Consumer (B2C) – VAT is applied at the place of supply, which is the UK for a British business supplying B2C services into the EU. Special rules apply for services of consultants, lawyers, accountants, data processing and a small number of other sectors, which are deemed to provide services in the location of the customer and therefore do not pay UK VAT.

Digital Services – All supplies of digital services are liable for VAT in the consumer’s member state. For B2C digital services, the responsibility for accounting for VAT lies with the supplier, not the customer. Businesses selling digital services to EU consumers need to register for a ‘Mini One Stop Shop’ (MOSS) in an EU member state to ensure the correct VAT is paid.

 

What can the government do to tackle the reduction in skills gap for many sectors (I.e Transport, Agriculture, Farming etc.)?

The obvious strategy would be to increase salaries to attract skills from overseas, however due to the government borrowing this looks highly unlikely. Businesses need to develop skills in-house, through either training new recruits or developing existing staff with additional training. Apprenticeships are the perfect way to do just that. Apprenticeships are a proven way to do this, which is why the government have invested heavily in apprenticeship and Kickstarter schemes encouraging businesses to hire young people.

With the Area Review process, local government, authorities, employers, colleges, and other providers were brought together, helping to sustain collaborative relationships that can bring about real change in education. The process was also helpful in highlighting some of the preliminary work needed to develop a strategic approach in skills provision, such as sub-regional skills needs analysis and whether the curriculum offer meets the needs of employers.

It’s also vital to continue and support the upward trend of the public sector focussing on upskilling the existing workforce. This will in turn naturally encourage new staff to join. Employees need to buy-into upskilling and believe in the benefits it will bring to them both personally and professionally through their role within the organisation. By motivating your workforce, employee engagement has shown to increase leading to success and a transition to digital transformation which is essential in this day and age.

 

Will supply chain issues likely cause mass disruption for businesses and individuals? How can this be avoided?

It’s possible that Brexit may disrupt the efficiency cost effectiveness of your respective supply chain. The introduction of tariffs, customs duties and other barriers to trade could have significant implications for how manufacturers acquire materials and components, create products as well as gaining access consumer markets.

For me, there are five steps to protect against supply chain disruptions, which are:

  1. Invest in the right technology
  2. Diversify suppliers and manufacturing partners
  3. Incorporate risk management into your supply chain management
  4. Create a procure-to-pay purchasing system
  5. Focus on the basics—’cash is king’

 

We hope this has outlined to you how the UK trade and service industry can protect themselves against the shortfalls of supply chain issues. If you require any further information on other ways to protect your business, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.

 
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