Post Brexit Checklist for UK Startups

Post Brexit Checklist for UK Startups

On Christmas Eve 2020, the UK government announced that a Brexit deal was finally agreed with the EU, just seven days before the transition period was due to end.

Digital businesses, who are still waiting for final agreements regarding data protection, have strongly criticised this decision. The level of uncertainty in some key areas, and the short-notice on others, are considered unacceptable by many industry leaders. But the criticism goes beyond the complexity of taxes or new difficulties to attract global talent: they are even questioning the UK’s viability as a tech and business hub in the long term.

The British tech sector attracted $12.4 billion in investment in 2020, compared to $5 billion each for France and Germany according to Atomico. It is fair to say that an established and promising ecosystem is at risk of unraveling.

Some believe that “the UK is set to drive away the very businesses it wants to attract.” Martin Taylor, Deputy CEO of Content Guru, recently expressed in his harsh critique of Brexit in The Business Insider: "I wish there were more people with real business experience in government," he said. "There's nobody who's a real business person, therefore they don't understand the concerns of running a business.”

Given the extraordinary nature of Brexit, we have put together a small guide of the four main topics you need to manage and navigate during these uncertain times. We hope you find it useful. As always, this is an important topic and so, if any of the topics below are important to you, you should seek professional advice as the information here is only intended to arm you with the right questions to ask.

VAT: what’s changed from January 1, 2021?

As the online accountant services provider, The Accountancy Partnership points out, UK VAT rules have changed because the system can no longer be supported by EU VAT rules. And this translates to changes to VAT on UK imports and exports.

Regarding digital businesses, the way to proceed is clear.

Before Brexit, UK businesses that sold digital services were subject to VAT MOSS, a policy implemented in 2015 that made it easy for these companies to sell digital services across Europe. This turned out great because it meant that companies didn’t need to register for VAT in every country they sold. But that has changed.

UK businesses who sell digital services have now two options:

  • Register for VAT MOSS in another EU country by the 10th of the month following your first sale.
  • Register for VAT in every country you sell digital services, which was exactly what VAT MOSS was born to prevent.

On the imports side, the accounting software firm Xero sums up the advice from HMRC on how to recover VAT faster from UK imported goods. HMRC has established a system called postponed VAT accounting (PVA), which lets your company avoid having to pay your VAT upfront and recover it at a later date. Naturally, this can translate into better cash flow management, an absolute must for startups. And you may do this using the same VAT return form.

According to Xero, you can choose to use PVA if you:

  • Have a UK business that is registered for VAT
  • Import business goods to the UK valued at more than £135 (exclusive of VAT)
  • Elect to use PVA on the customs declaration
  • Use your own VAT registration and EORI numbers on the customs declaration

Hiring of European citizens

Tech ecosystems live and die by their ability to attract the best talent around the globe, regardless of their nationality. And the UK is a great example of that. However, the new UK post-Brexit won’t make it easy for tech companies to attract the talent they need to build world-class tech companies.

From 1 January 2021, “EU citizens moving to the UK to work need to get a visa in advance.”

The government website clearly points out that “EU citizens applying for a skilled worker visa need to show they have a job offer from an approved employer sponsor to be able to apply” and “employers need a sponsor license to hire most workers from outside the UK.” More details on that here.

Recruiting of talent outside the EU is a bit more complicated. Find the necessary info here.

Should my company open a European subsidiary?

This is something that can’t apply as a general rule unless we talk about specific industries like fintech. But one reason a company might consider opening a European entity is that the eCommerce Directive no longer applies to the UK.

As the international law firm Bird & Bird suggests, Article 3 and 4 of the eCommerce Directive provides a protection for EU established online service providers. And that is no longer available for UK companies. This means that these companies need to comply with the national rules applicable to every single EU country where they operate.

In other words, UK companies should consider if they are already EU-established, or if they could become EU established in order to benefit from the “passporting” provisions of the eCommerce Directive.

Here is the official EU page to help you open a business in Europe.

GDPR

Unfortunately, the UK government and the European Commission have not reached a definitive agreement in terms of GDPR. A deal is to be brokered by negotiators in the upcoming months, but if your company receives personal data from the EEA, the ICO recommends to “put alternative safeguards in place before the end of April''. As you may have guessed, opening a European entity may be one of those safeguards. The good news is that, in addition to helping with GDPR, this can give you a way to continue to access European startup talent.

Nevertheless, the ICO does give some guidance for UK businesses on their website and encourages to keep a close look for upcoming updates until the UK has an “adequacy decision.”

We are afraid this is everything we can tell you for the moment.

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This post was inspired by questions provided by people like you. We love receiving new and interesting questions that help us think about data in new ways. If you found this post interesting and have other questions about Brexit that you’d like us to help answer, drop us a line at hello@cledara.com.

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