With the UK now in the Brexit transitional period, Jill Theobald caught up with a number of business representatives to find out the challenges, opportunities and new markets for our post-EU Sheffield City Region
Laurence Keir-Thomas, senior associate and solicitor, Fragomen LLP
As lawyers you want to be able to offer your clients certainty – and Brexit has been a constant conundrum for the last three and a half years!
We can understand why some businesses may have thought first off about their bottom line – how am I going to get my products and services exported after Brexit? With the negotiations starting at the end of January, we now have much more certainty and the priority for businesses is their people – their existing and future workforce.
Our advice is to identify who is going to be impacted and communicate with them as regularly and as empathetically as you can. Brexit shouldn’t cost anyone their residence as long as the rules are understood and followed. Europeans in the UK need to make an application to the EU Settlement Scheme. For those that have been here for five years or more that will give them settled status, and those under five years can apply for pre-settled status and then settled status later.
The Home Office system is a really modern and intuitive one – it takes around 20 minutes to make the application via a smartphone app or a computer browser. Reassure your staff on their rights, educate them on the processes, and ensure they understand the deadlines and risk of non-compliance. The existing process is for EU nationals and their family members arriving in the UK before December 31 this year, they have until the end of June next year to apply under the current system.
If people fail to do anything, the least worst-case scenario is their lives are likely to be seriously disrupted and while we would hope to avoid seeing deportations the Government’s position isn’t entirely clear.
UK national staff in European countries will also have to apply but each of the 27 states have different systems to ours, although a lot of the paperwork may be familiar to those already operating there. The processes are now starting to be published so businesses need to monitor announcements from the governments in those member states.
Sheffield City Region (SCR) businesses are being proactive and forward-thinking about this and supporting staff in a number of ways including access to communication strategies, webinars, video, step-by-step guides and one-to-one surgeries that Fragomen, and others are providing.
By the end of the year, with the end of free movement of people, EU nationals will be treated the same as non-EU nationals under a new immigration system so employers are also going to have to come to terms with a new work permit regime. The Government’s recent policy paper has sketched the outline of this. For skilled workers there will be a new Points Based System.
To score the necessary points the candidate will need a job offer, skills at A level equivalent, English language, and a salary of at least £25,600. There will be some flexibility for those earning between £20,480 and £25,599 if they are working in a designated shortage occupation or hold a PhD in a STEM subject relevant to the job. The proposals also remove the requirement on firms to advertise the role and the monthly limit on numbers will be suspended. For those workers from outside the EU this is a better system than the current one.
But it is also going to be potentially expensive to apply for both employees and employers. It also represents a significant increase in restrictions on employing EU nationals and their family members.
For the most highly skilled workers there will be options that don’t require a job offer. The existing Global Talent and Start-Up/Innovator routes, which cater for highly skilled people endorsed by the relevant sector bodies, research councils, universities and capital funds will remain.
In addition, the Government is continuing to explore a monthly mechanism to allow a smaller number of the most highly skilled applicant to come to the UK without a job offer or an endorsement. Points will likely be available for English Language skills, levels of qualification and experience with a likely focus on STEM subjects – which is important for SCR given our focus on high end technology and manufacturing.
Kiley Tan, MD, Mosaic International
Within the Sheffield City Region, a lot of the big, high profile companies are already trading overseas.
This didn’t happen overnight – it’s been ongoing as a result of years of investment, of course, but for SMEs the problem with trading overseas is, unlike the national and multinationals, they don’t have enough ‘bandwidth’ in terms of funding, resources or manpower to look into markets outside Europe.
The first question I ask potential clients is: How many people do you have working in sales, specifically in business development and they may say a handful. The next question is how many in sales in international markets, and it’s often just one – if that. That’s a big patch for one person.
That’s symptomatic of the whole issue for SMEs. If the majority focus on the UK with a small number working on the EU or the rest of the world, you can’t expect the proportion of international business you do to be any higher.
Apart from that, a sales person who is tasked with EMEA markets (Europe, Middle East and Asia) will look for the lowest hanging fruit – understandably, as they have targets to hit. So, they will focus on markets that are nearest, closest and easiest for sales wins. That has traditionally been Europe. That’s why we are so reliant on European companies.
Asia is sometimes overlooked due to distance, the language barrier, the culture gap and the way of doing business, which is very different. Or if they do make the effort and achieve a few sales here and there, they’ll say ‘we’re selling to Asia.’ But they’re not really if it’s not on a regular basis. It’s more about how we grow that, turning a one-off sale into a sustainable business strategy.
Companies may also only look at China and not consider the South East Asia. But China is no a panacea. It’s complex and difficult due to all the issues I’ve mentioned already.
Other considerations such as intellectual property (IP) protection are important as well. In South East Asia, places like Singapore and Malaysia have a developed rule of law inherited from the UK and a much more Western way of doing business. That’s where most Western companies are based knowing that there is a level playing field for businesses there.
The language barrier is also lower – most people of working age have a good working knowledge of English and most people have a second or third language, which may include Mandarin. Due to this, South East Asia is also seen as a ‘stepping off point’ to China.
Companies often have a very limited understanding of South East Asia – they have strategies for the EU, USA and maybe China but not South East Asia. But it is home to some of the most active economies in the world at the moment so, post Brexit, SMEs should not discount the region.
Some might set up a base or a correspondence office with a salesperson to generate those sales in order to start growing that sustainable business. Ultimately, if SMEs want business in South East Asia they have to be proactive and be there to win it. You can’t just put some information on your website, get a translator and hope the sales will follow.
Ultimately the message for SMEs wanting to get a ‘slice of the action’ in those active economies is to be pro-active, plan strategically and realise that it’s not as simple as it looks. At Mosaic International, we bring our understanding of the region, its peoples and cultures to help our clients succeed.
Jillian Thomas, MD Future Life Wealth Management
This is a really interesting time for the Sheffield City Region (SCR) and I don’t think we can look at our post-Brexit environment in isolation.
We also have the Coronavirus situation, and I believe put together they offer incredible opportunities that the SCR is well-placed to bounce off and benefit from.
Many factories are currently shut in China and not manufacturing goods, while hundreds of ships are anchored off the main ports unable to onload or offload goods – consignments can already take 60-days to be shipped from China, too, so the impact will mean a massive shortfall of Chinese manufactured goods available for sale in the UK.
Add in the apprentices we are creating particularly in engineering here in SCR, and the combination of both Brexit and the Coronavirus means we’ve potentially got a once in a lifetime opportunity to re-evaluate and grow our manufacturing base.
Future Life Wealth Management work with 50 manufacturing companies whose order books are exploding at the moment – not just because of Brexit but because companies are not able to source goods from China which are guaranteed to arrive.
The quality we produce in this region and this country is on most occasions superior than when we import from elsewhere, but we have in the past imported because it was cheaper. The fall in Sterling as a result of Brexit means we are able to start exporting as much as we are importing.
As businesses we’ve got to be more forward-thinking about exploiting these opportunities. We’ve got to push and promote our iconic Made in Britain and Made in Sheffield brands because they are a massive sell worldwide. While visiting a Spanish suburb recently I got chatting to a local who, when I told him where I was from, said: ‘Sheffield! Cutlery – the best cutlery in the world.’
We’ve had this disposable economy where we’ve just accepted other people can make things cheaper, but customers are increasingly wanting their products to be high-quality and to last, so it’s no longer just about price, it’s about sustainability.
If a small price increase on our goods ensures we look after our local and national GDP post-Brexit that’s the premium that’s needed to ensure our people are employed and we support local businesses and our economy. People want to buy local, cut down airmiles and contribute to a sustainable local economy – at Future Life we recently put a local hotel in touch with Moss Valley Farms who may have otherwise bought supplies from a national chain.
Another dramatic change we’ve seen is after the fires in Australia were broadcast on television, more people are enquiring about ethical funds than in the rest of my 22-year career. Businesses are increasingly looking to adopt an ethical bias to build towards a strong, sustainable economy.
The post-Brexit and current Coronavirus environments go hand-in-hand from an economic point of view – and we have to take those resulting opportunities with both hands.
Nick Patrick, Head of Sheffield Chamber International Trade Centre
No matter what sort of business you run, Brexit is likely to affect you – Sheffield City Region (SCR) businesses need to find out how, and quickly.
Yes, 31 January has been and gone. Yes, the UK PLC is no longer in the EU and a free agent able to negotiate deals around the world. And yes, we have the withdrawal agreement which in turn allows an 11-month transition period.
But on December 31 this year full customs procedures will be implemented regardless of whether there’s a trade agreement or hard Brexit. That means on January 4, the first working day of 2021, any deliveries outside the UK will be controlled by Incoterms (International Commercial Terms).
Take this hypothetical example of an exporting SCR business.
A lot of EU companies are currently contacting South Yorkshire suppliers to ask if after the transition period they will continue to deliver to them. Some businesses, not wanting to upset customer relationships, are saying yes. The European customer replies they don’t want any additional costs or admin work because of Brexit so the SCR business assumes ‘we’ll have some duty to pay, let’s say 3 per cent, but will absorb it at least for six months until things settle down’.
Delivering to Germany today is like delivering to Birmingham, other than freight costs and Intrastat, but after January 4 customs procedures will be applied in full under Incoterms which means DDP – delivered duty paid. When a truck leaves an SCR factory, they will have to complete export declaration and will need a customs agent to do that. Then the goods will require an import declaration as it goes through customs to enter Europe or it will be turned away – and they will need a European agent to do that. The duty will have to be paid before the goods are released but also VAT which is for EU 20 per cent.
The SCR company may be able to absorb 3 per cent – but 20 per cent VAT, too? And that is not recoverable unless they have a VAT registered company in Europe.
Proof of export documentation is essential as part of customs compliance – if they’ve not got those documents, HMRC will demand the VAT back.
SCR importers are in a similar situation, paying VAT and the duty. The duty they can’t do anything about, VAT they can reclaim through quarterly VAT returns but that could in turn cause cashflow problems.
Sheffield Chamber International Trade Centre has been assisting business to understand the ‘Brexit effect’ on their businesses. We can calculate the effect of duties, customs procedures and cashflow on their profit and loss statement after full customs procedures are implemented. We thoroughly understand customs procedures and systems, so can look at mitigating costs and risks specifically for each individual business.
But businesses need to look into this soon. HMRC could take up to six months to give a decision on the customs procedures that can be applied for to mitigate costs. By August companies all over the UK are going to be ‘smelling the Brexit coffee’ and scrambling to HMRC – and won’t be ready by the time January 4 comes.
