What will the impact of Brexit on business be in the short and mid-term? This article highlights some of the key points our Corporate & Commercial team believe businesses need to be aware of.

This article is part of a series of articles on how to prepare your business for Brexit. Our legal advisors have also produced a business guide to help you navigate the challenges.

Short-term impact of Brexit on business

Our team expects significant short-term disruption, including:

  • The speed of both export and import of goods;
  • Contracts that are linked to specific delivery or completion dates;
  • Border delays; and
  • Fluctuation provisions may need to be incorporated into contracts as well as protections in relation to border issues.

Stock markets & investment

There may also be volatility in the stock and currency markets, particularly in the event of a no-deal Brexit. This will have the most impact on companies operating in Europe, in particular those who are party to contracts with fixed exchange rates without sufficient hedging cover. If stock market values dip, as we saw earlier in 2020 with the onset of the pandemic, investment portfolios will suffer again and, as ever, investors will be watching closely to see which sectors and businesses are thriving in a time of potential upheaval.

Foreign direct investment may decrease in the short term, reducing liquidity for UK businesses and making them more reliant on UK-based debt funding. The increased demand may have an impact on the debt finance market in the UK. If your business is considering debt financing in the short to medium term, it may be worth considering taking advantage of the current rates being offered by lenders.

Supply chains

Supply chains are likely to have increased cost by way of demand and tariffs as well as having reduced reliability and increased timescales due to border delays. Businesses have already anticipated this, leading to increased stockpiling, which we have seen before as previous deadlines have approached. It may be prudent to consider the use of consignment agreements to mitigate this. Supply contracts should be reviewed to see whether provision for delays and increased costs should be addressed.

We may see an increased use of International Commercial Terms (or Incoterms) in relation to goods traded between the UK and the EU, although businesses should always consider whether they need to use their own bespoke terms when exporting or importing goods. Exporters are already having to address the necessary paperwork that will be required for hauliers to take their goods into the European Union from 1 January (see below for further details).

Medium-term impact of Brexit on business

In the medium term, businesses may consider restructuring to take advantage of the new regulatory landscape. UK businesses may want to establish an EU base to access EU regulatory schemes, but equally, EU businesses may consider establishing a UK base to take advantage of any increased flexibility and beneficial tax regime that may follow independence from EU regulations.

Many corporate finance advisers are anticipating a surge in deal-related activity in relation to owner managed businesses ahead of the next Budget in 2021. Many advisers and business owners fear current rates of Capital Gains Tax (CGT) may be changed as a result of the need to improve the state of the public finances, leading many to do a deal before the next Budget.

Whilst uncertainty around the future of CGT may act as a catalyst for deals, this may be hindered by the uncertainty created by Britain’s exit from the EU. For example, many sectors could be affected in very different ways depending on (a) whether a deal is made and (b) the terms of that deal. This makes valuations difficult and will present a challenge to those who are tasked with brokering a deal in any sector significantly affected by Brexit.

How we can help

This article is for general information purposes only and should not be used as a substitute for legal advice. If you are unsure of your legal obligations in any part of your business management, we can support you through the whole process.

Our expert teams can help you navigate the new rules around immigration, employment contracts, supply chain, data protection, commercial property disputes and any legal matters affecting your business. For more information, our legal advisors have produced a Brexit business guide and series of articles – you can also get in touch if you have any questions.