While nobody was suggesting that Brexit would be easy, there is a growing belief that the political divide and self-interest have created a significant problem for online and off-line businesses. At this moment in time, we know that the UK will definitely leave the European Union on 29 March 2019. Whether the transition period or Article 20 will be extended remains unknown but in just a matter of weeks the UK could leave the EU with “no trade deal.”
So, what does this mean for UK businesses trading with European Union customers and vice versa?
Surviving the Brexit fallout
There are a number of issues to take into consideration for e-commerce websites around the world. Many of them are relatively straightforward while others may well be out of the control of businesses.
General Data Protection Regulation (GDPR)
When GDPR was introduced on 25 May 2018 many EU businesses breathed a sigh of relief after what was a stressful and uncertain build-up to D-Day. Companies were forced to invest significant amounts of money to align themselves with European Union laws on data protection and privacy. While we still await the first court challenges, the majority of UK companies now have the relevant process in place to protect the data of EU citizens. Now for Brexit!
The headlines suggest that Brexit will detach the UK from all European Union laws and regulations. To a certain extent this is correct but with regards to GDPR, the UK has already acknowledged it will retain the current legislation. This means that while the UK will be treated as a non-EU party in the trade with EU citizens there will be little fallout. In order to maintain this equilibrium, the UK government would be obliged to follow the lead of European Union regulators on GDPR in the future. The only advice to UK e-commerce businesses would be to ensure that you are trading in line with the current GDPR regulations and continue to monitor what is a fluid situation. After that, the transfer and sharing of data should be fairly straight forward.
The relationship between UK merchants and their European counterparts will change dramatically in the event of a no deal Brexit. The hope is that the EU and UK can agree a trade arrangement going forward which would simplify not only tariff levels but also the collection of taxes. At this moment in time, the UK is part of the EU VAT area which means that member states do not need to collect VAT upon receipt of imported goods. Online and off-line businesses simply collect VAT when the products are sold which keeps the system extremely simple. There are high hopes that the UK can agree a revised EU VAT area in which the country could remain a partner to simplify trade between the European Union and the UK.
In the event of no deal Brexit, the UK authorities would be obliged by international law to collect VAT on imports from receiving parties when they land in the country. This means that businesses would take a significant cash flow hit because they would need to sell their products, inclusive of VAT, in order to offset their VAT payments. There will mean additional paperwork, the pressure to turn over goods quicker and the busier a business becomes, the greater the potential impact on their cash flow.
Logistics and the flow of goods
There has been much mention of the logistics of importing and exporting goods between the UK and the European Union post Brexit. There will certainly be more paperwork, there will be tax implications as we have mentioned above but will things really be as bad as people are suggesting?
The general consensus seems to be that importers/exporters will wait to see the lay of the land before committing themselves to significant changes/investment. If there is a significant cost increase due to import/export regulations then much of this will be passed on to consumers. We may also need to become more accustomed to importing timelines more associated with non-EU entities as opposed to the current day frictionless speedy import system associated with the EU. The world of e-commerce is extremely competitive and despite significantly reduced overheads, compared to their traditional counterparts, margins tend to be relatively small. Will this have an impact upon the longevity of some of the best-known e-commerce companies today?
Perhaps the best way to monitor changes in logistics, taxes and the flow of goods between the European Union and the UK is to keep an eye on how the likes of Amazon and eBay are adapting. They will have taken legal advice, be more aware of potential changes than the general public and offer indirect guidance for other e-commerce operations.
A Possible EU Domain Rush?
The subject of EU domains is causing major problems for UK businesses who currently sell into the EU market. In order to acquire a .eu domain a business/individual must reside in the European Union (or at least have what could be termed an EU footprint). We have even seen threats from the European Union to cancel hundreds of thousands of .eu domain names held by UK based businesses/individuals. To combat this, there have been rumors of some UK companies setting up “satellite offices” within the European Union to maintain a foothold and allow them to continue trading with EU customers.
In reality, it is perfectly reasonable for the European Union to restrict ownership of .eu domain names for those who do not comply with the regulations. The fact that many UK based online businesses will have invested significant amounts of capital into their European Union operations is unfortunate but a potential consequence of Brexit. The only way this can be rectified and the status quo maintained is to arrange a frictionless free trade agreement between the two parties.
UK Web Hosting providers
The UK web hosting industry is fairly robust and regularly appears on the list of best web hosting deals. As the UK will effectively be deemed a foreign country when it leaves the European Union on 29 March 2019, this will create some challenges but also some benefits for UK hosting companies. There will certainly be a greater focus on GDPR and the ability of the UK companies to deal with European customers.
We may also see some UK based web hosting companies increasing their EU exposure via new satellite offices. This could possibly help to negate the issue of EU based customers looking to retain their customer within the EU. It is also worth noting that due to currency movements since the 2016 referendum, it would be more expensive for UK businesses/individuals to use overseas hosting companies. On the flip side, it would be cheaper for EU businesses/individuals to use UK based hosting companies. Bizarrely, this could actually strengthen web hosting the UK as a sector.
The reality is that the devil will be in the detail. While the European Union continues to talk tough, blocking trade between the EU and the UK would be commercial suicide for both parties.
It is unfortunate but political persuasions, denial and misunderstandings are dominating the Brexit headlines. All we tend to hear of is the potential negative impact which Brexit may have on traditional and online businesses in the UK. When you look at each subject in isolation, the UK is likely to maintain a similar data protection system to the current EU GDPR framework. This should ease trade between the entities. It must surely be in the best interest of both parties to retain a simplified import/export system including the collection of taxes on imports. If UK based businesses are struggling then we can guarantee that there EU counterparts are experiencing similar challenges.
You should check with your UK hosting provider but, GDPR apart, it is difficult to see any major change in the way in which web hosting companies will operate. Indeed, as we touched on above, a near 20% reduction in the value of sterling since the referendum in 2016 makes UK hosting services relatively more attractive to overseas customers. As a by-product, the fluctuation in sterling has added a 20% premium to UK businesses using European Union and US-based hosting companies.
In summary, there will be positives and negatives regarding Brexit, no matter what the eventual outcome. Perhaps it is time to focus on the opportunities and the positives as opposed to allowing negative comment and views to dictate the process.