What will be the Impact of Brexit on Small and Medium-Sized Enterprises (SMEs)?

As we near the end of the transition period on the 31st December 2020, around 5.9 million SMEs in the UK will be anxiously awaiting the outcome over whether a deal is struck. Amid the uncertainty, SMEs should be mindful of the impact that Brexit could have when making plans and commitments to the post-Brexit future. This feature provides an overview of how Brexit may affect certain business activities of SMEs.

Supply Chain and Tariffs

SMEs which supply or source goods across the EU are likely to be affected by supply chain issues. Disruptions at borders and ports are expected hinder the ease of trading with EU countries, particularly for exports into EU countries. Consideration should therefore be given to existing contracts as to whether conditions regarding delivery remain achievable and the impact on the supply chain, service levels and key performance indicators with customers. More flexibility may need to be written into contracts on this point, to provide greater protection should time stipulations not be met. SMEs should also be conscious of increased tariffs leading to enhanced overall costs in the supply chain process, should WTO rules apply (which is the default position if no deal is agreed).

Data Protection

GDPR will still be in force in respect of the processing of personal data post-Brexit. However, SMEs who transfer or receive personal data across EU borders currently face uncertainty. At the end of the transition period, the UK will be classed as a ‘third country’ involved in the transfer of data with the EU. Such third countries require an ‘adequacy finding’, to determine whether they hold an adequate level of protection in relation to such data transfers. The UK Government are currently seeking reassurances over such a finding being granted, but there are no guarantees. SMEs should therefore prepare that in the worst-case scenario of the UK being deemed inadequate, their existing information security and data protection frameworks, along with existing contracts, are geared up to GDPR standards. If not, SMEs will risk fines or enforcement action.

Intellectual Property (IP)

Brexit could have substantial repercussions on IP since a large part of IP legislation in the UK is a direct consequence of EU regulation. Whilst the Intellectual Property Office has indicated that they will create comparable UK trademarks to those recognised within the EU, some IP rights held by UK SMEs may be in danger of no longer being recognised in the EU. Clarification may need to be sought on this point as well as legal advice to consider alternative forms of protection and registration within the UK to avoid any potential actions for IP breaches. SMEs should also be aware of possible filing delays in the UK for new applications leading to a lack of protection for a period.

Employment Issues

SMEs with a significant EU workforce face challenges in the post Brexit era. Certain sectors are more likely to be affected, such as hospitality and those reliant on seasonal employment. SMEs may face skills shortages due to a loss of EU workforce as well as difficulties recruiting for unskilled work. Constant consultation with employees is recommended to ensure that employees who are eligible for the EU Settlement Scheme are taking the necessary steps required to remain in the UK for work purposes, in order to prevent any unexpected gaps in the workforce. SMEs should also be aware that there will be new immigration rules following the transition period.

Brexit Clauses

Brexit clauses are a useful mechanism for providing protection against adverse events arising in connection with Brexit. SMEs need to be aware when entering new contracts over how Brexit may affect the performance of the agreement and consider making suitable provisions for it. The parties to the contract will wish to define certain trigger events upon which the performance of the contract may change. It is therefore advisable that such clauses are drafted clearly to ensure that appropriate situations and variations are expressly provided for (and perhaps even the right to terminate the agreement). It may also prove wise to review existing agreements and add in any appropriate Brexit related variations to the contract, in order to provide adequate protection following the end of the transition period.

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The Impact of Brexit on Small and Medium-Sized Enterprises (SMEs)