How do you manage change for your business when the politics of Brexit keeps changing?

What assurances do we have from a legal perspective on Brexit?

Nothing is agreed until everything is agreed, and it is still not clear that the UK will leave at all, much less with or without a withdrawal agreement, therefore there are no assurances from a legal perspective on Brexit.

That said, there are certain consequences of any potential Brexit for some industries, people and scenarios that have enabled businesses, consumers and citizens who have the time and resources to plan for a ‘worst case scenario’.

For instance, any form of Brexit would effectively mean a ‘no deal’ for services from Brexit Day. Most services are not covered by free trade agreements; and certainly not to the extent that the UK relies on free movement of services for exports to the European Economic Area (EEA).

Services represent 80% of UK GDP, 80% of UK jobs and a third of all exports, 40% of which go to the EEA. Brexit would mean the end of both mutual recognition of professional/trade qualifications and the current protection from differing service standards and regulatory supervision for UK providers compared to local providers in EEA export countries.

Some national trade bodies across the EU may retain their specific mutual recognition status (e.g. architects), while others will not. EEA member states, like any other country, will be free to set tougher standards that exclude UK service providers. Financial services ‘passporting’ will cease, and the potential for an ‘equivalence’ recognition regime is comparatively unreliable because it can be withdrawn quickly and without appeal (as the Swiss stock exchange has discovered). VAT rules on the supply of services will also cause headaches, particularly for smaller businesses who currently benefit from being below certain thresholds that won’t apply to third countries.

Personal data flows underpin a lot of services, but personal data will no longer be transferable from the EEA to the UK as of right. That means new transfer arrangements will be required pending a decision by the European Commission that the UK’s data protection regime is ‘adequate’ to allow transfers as of right. Such a decision that would likely take months after Brexit Day for the authorities to agree, and there are certain features of the UK’s role in international organisations, for example, that means a decision is not assured.

Resolving disputes in this context would also be difficult. The WTO rule aimed at preventing one WTO member country from discriminating against another member state (‘most favoured nations’ or ‘MFN’) has not proved very effective in negotiations with the EU on services. Free trade agreements also contain MFN clauses that require one party to offer the other any similar benefit that has been offered to another country, but the EU limits the scope of such clauses in its FTAs to avoid mutual recognition or equivalence decisions, for example, and only allows the European Commission and the European Court of Justice to decide what meets EU rules.

Immigration and visa restrictions also affect services, since people often have to be physically present to provide services. Under any form of Brexit, British citizens lose the right to live and work fairly freely in the EEA and will need to understand how the restrictions in each country affect their right to speak at conferences, attend meetings, visit customers, participate on projects and so on. In this context, the ability for Irish and British citizens to travel and work freely between the UK and the Republic of Ireland under the Common Travel Area arrangements is a welcome relief.

How useful is the government’s advice and how can businesses use it to prepare for various outcomes?

The information on the Gov.uk/Brexit site is very high level. It is not a bad place to start in terms of the key issues to explore, but do not expect any answers. You should take your own independent financial, accounting, tax or legal advice based on your specific circumstances.

What should businesses be doing?

In the face of such gross uncertainty and awkward consequences, it’s easy to see why some people might be tempted to wait and see what happens. But it has been prudent for any UK business with significant income from the EEA to work on the basis of a ‘hard Brexit’.

That may mean setting up or expanding at least one entity in the EU27 to service EEA-based customers; and people with the right to do so have applied for citizenship or residency.

As a lawyer, I knew that my own UK qualifications would no longer be recognised in the EEA, so I became qualified as a solicitor in Ireland and am now able to advise UK clients on their EEA businesses via an Irish law firm.

If you’re a company director, you have a duty to promote the success of the company, as well as a duty to exercise reasonable care, skill and diligence; and you need to be able to show you have fulfilled those duties in the context of Brexit.

Depending on the size and scale of the company and its business, such evidence might include board discussions, a sub-committee, minutes, briefing papers, presentations, risk registers, scenario planning, supply chain analysis to identify suppliers at risk who may need to be replaced/helped; and resolutions to address threats and opportunities.

These decisions might include:

• Setting up a new subsidiary in an EU27 member state;
• Rewriting contracts with new governing law and other pertinent changes (Ireland would be the only remaining common law jurisdiction left in the EU27 and its laws are very similar to the UK, so this will suit clients who already contract in English under English law with their suppliers and customers in the EEA);
• Establishing a new basis for transferring personal data from EU customers/suppliers to the UK (e.g. by adding standard model clauses to existing or new contracts); and
• Considering the tax impact of novating contracts or moving income, assets or other business activity to an EU27 country.

It is better to act now, based on what you know (and any ‘known unknowns’), than to hope for greater clarity or beneficial changes in the future only to leave yourself unprepared…

Should you have any queries arising out of this KeyNote, please do not hesitate to contact Simon Deane-Johns using the details below.