UPDATE: The UK and the EU have agreed a flexible Brexit extension to 31st January 2020. A no-deal Brexit is still possible on this date, pending the result of the upcoming general election and the approval of Boris Johnson’s deal by Parliament.
The latest twists and turns in the Brexit process have been as unpredictable as it gets.
Talks between the UK and the European Union have stalled after failing to agree on future arrangements for Northern Ireland. Boris Johnson’s firm pledge to leave the EU on 31st October means a Brexit deal looks unlikely without a delay or a significant political shift.
Business leaders have been warning about the impact of leaving without a deal since Theresa May’s withdrawal agreement was rejected by Parliament in March.
In July, the Confederation of British Industry said a sustained lack of investment, disruption to the delivery of goods, and the uncertainty of trade negotiations after a no-deal Brexit would expose businesses to “economic chaos”.
With a no-deal Brexit now on the horizon, what can you do to protect your assets and business?
Get ready for a recession
Economists have widely predicted a recession in the UK following a no-deal Brexit.
KPMG forecasts a 1.5% decline in the economy in 2020, should the Government fail to reach an agreement with the EU. The UK would enter a recession after two consecutive quarters of negative growth in GDP.
Trading under the terms set by the World Trade Organisation would also involve expensive tariffs on some imports until new agreements are made.
While a recession will impact different industries to varying extents, you can generally expect banks to be far more cautious about lending, and customers to spend less money.
In such an uncertain situation, it’s imperative to protect your assets.
Consider your business structure
The most important thing to address as a no-deal Brexit approaches is the structure of your business.
Being registered as a sole trader could pose a serious risk, if you’re in an industry that is likely to bear the brunt of leaving the EU without a deal.
Under sole trader status, you and your business are treated as the same legal entity by HMRC.
The debts and liabilities of your business are yours to fulfil. If your business fails owing money to creditors, then your personal assets are fair game to repay those debts.
There’s no limit to liability as a sole trader. In extreme cases, this can lead to the loss of your home and savings, or personal bankruptcy.
The best way to protect your assets from this risk is to set up a limited company.
One of the main advantages of limited company status is that it offers limited liability. As your business is a separate entity, your personal finances are largely protected.
If a no-deal Brexit leads to a recession and your limited company becomes insolvent, debts will only be recovered from the company’s bank account and assets.
Your business may already be registered as a limited company. In that case, consider rearranging your affairs into a group structure, which will offer extra protection for your assets.
This isn’t a straight-forward process and you’ll need an accountant to make sure it’s properly carried out.
Build up your cash reserves
A no-deal Brexit would cause significant issues with cashflow for some small businesses.
There are several consequences to leaving the EU without a deal that could cause cashflow problems. These include delays to the delivery of goods, paying a 20% VAT on imports from the EU, and reduced confidence from banks and investors.
Many companies have been stockpiling cash ahead of the UK’s departure from the EU. Small businesses have reportedly increased the amount of cash in their current accounts by 78% in the last two years as they prepare for Brexit.
While there is little time remaining until Boris Johnson’s “do or die” deadline for leaving the EU, saving funds and spending cautiously makes sense until we have more certainty about the UK’s future trade arrangements.
Cashflow issues are notorious small business killers, especially if your business relies on bank guarantees. Check the terms of your guarantee and ensure you’re fully aware of its conditions. You may have signed the guarantee several years ago.
Consult your accountant
Your accountant should have already advised you on how to protect your business from the dangers of a no-deal Brexit. And if they haven’t, we will. Appleby Mall is offering a free consultation worth £250 to draw up a plan to protect your assets.
Making the required changes to protect your assets can be a complicated and time-intensive process. It can take up to 18 months to complete.
The clock is ticking down to 31st October. Amid rumours that the Government will refuse to request another extension from the EU, it’s vital that you don’t wait around.
We can offer decades of experience in business advice and a keen eye on any developments in Brexit. If you’d like to get in touch, fill in the contact form below or call us on 01902 422020.