Business groups, including the British Chambers of Commerce (BCC) and the Confederation of British Industry (CBI), have reacted to the six-month ‘flexible’ extension of Article 50, granted to the UK by EU leaders.
The new Brexit deadline of 31 October 2019 has stopped the clock on the UK’s potential no-deal withdrawal from the EU, which had been set for 11pm on 12 April 2019.
Reacting to the news, the BCC stated that the flexible extension will be ‘preferable’ for most businesses. It said: ‘The prospect of a messy and disorderly exit on Friday has again been averted. Businesses will be relieved, but their frustration with this seemingly endless political process is palpable.
‘Politicians must urgently agree on a way forward. It would be a disaster for business confidence and investment if a similar late-night drama is played out yet again in October.’
The CBI said that UK businesses will be ‘adjusting their no-deal plans’ as opposed to cancelling them. Carolyn Fairbairn, Director General of the CBI, said: ‘This new extension means that an imminent economic crisis has been averted, but it needs to mark a fresh start. For the good of jobs and communities across the country, all political leaders must use the time well.’
Meanwhile, the Federation of Small Businesses (FSB) said that Brexit deadline extensions ‘provide no comfort’ that there will be an end to the debating. Mike Cherry, National Chairman of the FSB, said: ‘By October 31, a third of the planned transition period will have been lost. Unless we get a political consensus, all a further extension does is create even more uncertainty, which is driving small firms to despair.’
The International Monetary Fund (IMF) has downgraded its global growth forecast for 2019 to its ‘lowest level’ since the financial crisis.
In its latest World Economic Outlook document, the IMF downgraded its global growth forecast to 3.3% for 2019, and 3.6% for 2020. According to the IMF, the UK, the US and the Eurozone could be adversely affected by slowing global economic growth.
The IMF also stated that global growth could slow ‘even further’ as a result of trade tensions and the ‘uncertainty surrounding Brexit’.
In its report, the IMF said: ‘Amid waning global growth momentum and limited policy space to combat downturns, avoiding policy missteps that could harm economic activity needs to be the main priority.’
Commenting on the matter, Gita Gopinath, Chief Economist at the IMF, said: ‘This is a delicate moment. What we are seeing is a slowing global economy. We’ve reduced our forecast for growth for 2019, and at the same time we are expecting a recovery in 2020.’
A survey carried out by the British Chambers of Commerce (BCC) has suggested that the ‘key indicators’ of UK economic health ‘weakened considerably’ during the first quarter of 2019.
The data revealed that the balance of services sector firms reporting an increase in export sales stood at zero – representing its ‘weakest level’ since 2009.
Meanwhile, the balance of manufacturing businesses reporting an increase in domestic and export sales ‘fell to its 2016 level’. The BCC stated that the ‘lack of clarity’ in regard to Brexit is ‘weighing on investment intentions’ for both the services and manufacturing sectors.
It also said that increases in business costs brought about by Making Tax Digital (MTD), rising business rates and increasing employer pension contributions are ‘raising cost pressures’ for firms across the country. The BCC is calling for the government to ‘reduce rather than increase’ burdens.
Commenting on the survey, Dr Adam Marshall, Director General of the BCC, said: ‘Our findings should serve as a clear warning that the ongoing impasse at Westminster is contributing to a sharp slowdown in the real economy across the UK. Business is hitting the brakes – hard.
‘The prospect of a messy and disorderly exit from the EU is weighing heavily on the UK economy, and must still be avoided.’
The government has published additional documents containing advice on Brexit for UK small businesses.
According to the government, the information will help business owners to ‘understand how leaving the EU may affect their business’. The advisory documents cover a range of issues, from changes to UK-EU trade following Brexit, to alterations to how businesses send and receive personal data from international partners.
Amidst ongoing Brexit uncertainty, the documents urge small businesses to ‘prepare now’. Firms that import or export goods to the EU are urged to apply for a UK Economic Operator Registration and Identification (EORI) number, in order to continue trading with the EU post-Brexit.
Businesses that provide services to or operate in the EU may need to comply with new rules following Brexit. A business could be affected if it has a branch or branches in the EU; it operates in a services sector within the EU; it is planning a merger with an EU company; or if its employees have to travel to EU or European Economic Area (EEA) countries for business.
Meanwhile, businesses that hold intellectual property are warned that they may face changes to their copyright, patents, designs and trademarks following Brexit.
The government is urging small firms to utilise its EU Exit Tool – this can be found here.
Chancellor Philip Hammond’s second Spring Statement was delivered against a backdrop of political turmoil, following the voting down of Prime Minister Theresa May’s Brexit withdrawal deal.
Despite describing the economy as ‘remarkably robust’, the Chancellor offered a clear warning on the potential impact of a no-deal scenario, which he said would put progress on the public finances ‘at risk’ and cause ‘significant disruption’ to the UK economy.
The latest forecasts from the Office for Budget Responsibility (OBR) revealed mixed news on the economy, with the OBR revising down its previous UK growth forecast for 2019 from 1.6% to 1.2%. Meanwhile, the forecast for government borrowing has also been revised down from £25.5 billion to £22.8 billion, with the Chancellor heralding rising wages and a strong employment market.
However, Mr Hammond emphasised the importance of a smooth Brexit transition in securing economic stability, pledging that a £26.6 billion ‘deal dividend’ would be made available to help boost the economy, providing that an agreement can be reached. The Chancellor also confirmed that a full Spending Review will conclude alongside the 2019 Autumn Budget.
Turning to other issues, the Chancellor announced new government investment in the UK’s physical and digital infrastructure, technology, housing and the environment, together with a bringing forward of the £700 million reforms for business apprenticeships previously announced in the 2018 Autumn Budget.
The Chancellor’s statement also confirmed that the government will apply a ‘light touch’ approach to penalties under its new Making Tax Digital (MTD) regime, which comes into effect on 1 April 2019 for VAT-registered businesses. The government will not mandate MTD for any other taxes or businesses in 2020.
Other measures announced include free sanitary products for secondary schools and colleges in England from the start of the next school year, and an additional £100 million fund dedicated to tackling the recent surge in serious violence and knife crime.
In his Spring Statement speech, Chancellor Philip Hammond responded to the latest forecasts as published by the Office for Budget Responsibility (OBR).
Acknowledging that economic growth in the UK and around the world has ‘slowed since the Budget’ in October 2018, the OBR cut its UK growth forecast for 2019 to 1.2% from 1.6%.
It also revised down its government borrowing forecasts: the OBR expects the government to borrow £22.8 billion this year, which is significantly lower than the £25.5 billion predicted during the 2018 Autumn Budget. The OBR attributed the decrease to ‘higher income tax receipts and lower debt interest spending’.
The OBR stated that it produced its latest forecasts ‘against a backdrop of considerable uncertainty’, primarily generated by Brexit. As a result, it stated that it has ‘no meaningful basis for changing the broad-brush assumptions’ that have underpinned its forecasts since the EU Referendum.
The OBR said that a ‘disorderly’ ‘no deal’ Brexit ‘remains the biggest short-term risk’ to its forecasts.
HMRC has published guidance on how businesses should account for import VAT in the event that the UK leaves the EU without a Brexit deal.
According to the guidance, if the UK leaves the EU without a deal, VAT-registered businesses may choose to account for import VAT on their VAT return, as opposed to paying when the goods arrive at the UK border. Goods from both EU and non-EU countries will be covered by the rules.
If businesses are not registered for VAT in the UK, they will not be able to record the import VAT on their VAT return, and will be required to pay VAT up front at the time of import.
Any goods already in transit from the EU must continue to be treated as acquisitions, and VAT must be accounted for on the return for the period in which the acquisition occurred.
From 29 March 2019, all businesses importing goods into the UK will need a UK Economic Operator Registration and Identification (EORI) number. HMRC intends to write to all VAT-registered importers and exporters in order to explain the steps they will be required to take in the event of a no deal Brexit scenario.
Jim Harra, Deputy Chief Executive of HMRC, stated that HMRC ‘recognises the challenges businesses face’ in getting to grips with the new requirements by 29 March 2019. Mr Harra said that the Revenue is ‘committed to supporting’ firms.