No Deal Brexit – What does this really mean for business?

In light of the rejection by Parliament ,on 15 January 2019, of the EU Withdrawal Agreement, it now appears more likely that a “no deal Brexit” could occur.

The government has already published on 21 December 2018 an outline of its preparations for a No Deal Brexit.

In the event that the time period relating to the UK’s exercise of Article 50 EU Treaty is not extended or withdrawn the UK will leave the EU and cease to be bound by all related EU treaties at 11pm (UK time) on 29 March 2019. This 2 year timetable is set out in Article 50 of the EU Treaty and has been approved by Parliament as part of the European Union Withdrawal Act 2018 (EUWA) so that the exit date from the EU and the repeal of the European Communities Act 1972 will be effective on the “exit date” currently defined as 11pm on 29 March 2019.

If no alternative arrangements are agreed between the EU and the UK, which seems unlikely, and the government and Parliament are unable to agree on an amendment of the exit date under EUWA, businesses need to make urgent preparations for the likelihood of a no deal Brexit now, rather than waiting until a deal is off the table completely.

What does this mean?

Currently, membership of the EU and being a part of the Customs Union and the Single Market enables UK businesses to benefit from borderless and tariff free trading arrangements with all EU member states. EU membership also enshrines the concept of mutual recognition of rules and regulations in relation to quality standards for goods and the recognition of qualifications or other standards or processes for services provided.

If the Withdrawal Agreement is not entered into, there will be no transitional period (currently envisaged to take place from 30 March 2019 to 31 December 2020). Should this occur, the UK will no longer form part of the Single Market or the Customs Union and will be treated as a “third country” in terms of trading arrangements with the EU, meaning that the UK would be treated from a trading and services perspective as a non-EEA country.

Parliament has already passed EUWA which, assuming no other arrangements are put in place, will effectively enshrine all existing EU law into the relevant legislation in the UK on 30 March 2019.  This deals with the immediate question of uncertainty in relation to the legislative framework applicable to the UK in this scenario.

From that point, some of the key issues which will need to be considered are:

  • World Trade Organisation (WTO) Rules
  • Mutual recognition (or lack of)
  • How importing/exporting will be affected (relating to Goods & Services)

What steps should now be taken?

  • To try and minimise the possible disruption and impact of a no deal Brexit, businesses now need to review which areas and structures within their organisations may be affected, including: IP rights
    • look at trademark protections and consider UK registration rights in addition to pre-existing right
    • Are there any licensing agreements for IP which need to be revised?
  • Data protection – do you have customers or suppliers from the EU? Do privacy policies need to be amended and updated?
  • Employees – are any of your employees from the EU? What steps do you need to take to support and retain them?
  • Customer or Supplier Agreements – review and consider EU specific contracts and how they may need to be amended
  • Goods or Services – do you sell to the EU or provide services to EU customers or clients? Consideration needs to be given to your group structure – should you set up a branch or trading company in another EU member state?

Even if you are UK-focused business, you may well have trading relationships, employees, clients or suppliers who are based in the EU or who rely on the UK being part of the EU to be able to trade with you.

Based on the current uncertainty, we would strongly recommend considering the actions outlined above as an initial step to mitigate future risk to your business in the wake of continued political uncertainty.

Useful Links

HMRC

National Audit Office

UK Govt publications

This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.