Business community reports firms have not taken steps to prepare for Brexit

09 November 2018 Consultancy.uk 8 min. read
More news on

Businesses across Europe and the world have been bombarded with warnings that Brexit could have dire consequences for their bottom-lines, in recent months, unless they take pre-emptive action. Despite this, however, more than 40% of respondents to a new poll have suggested they believe post-Brexit life will be business as usual, while a similar number are yet to take significant action on the matter.

In mid-October 2018, embattled UK Prime Minister Theresa May issued a claim that the Brexit deal was “95% done”, prompting a flurry of press activity suggesting that an accord on the UK’s withdrawal from the European Union had finally been struck. However, several weeks later, the picture remains no clearer for citizens, businesses or governments across Europe, with domestic talks having stalled once more for May’s beleaguered Premiership. 

Aside from the splintering of her own Conservative Party on the aspects of the agreement which are supposedly in place, May must still negotiate a key sticking point contained in that alleged remaining 5%, namely the question of a hard border between Ireland and Northern Ireland. This, in fact, has been one of the major hurdles which has seen negotiations in Brussels come to a standstill on a multitude of occasions since the triggering of Article 50 in March 2017, and to a large degree renders the other 95% somewhat academic, with Irish Tánaiste (or Deputy Prime Minister) Simon Coveney having already warned that the Conservative party was again “negotiating with themselves” over Brexit, while mistakenly considering a cabinet decision as “end of story”.

Bearing this in mind then, even with the constant chatter of spin doctors heralding a supposedly imminent deal, the only thing anyone can say with any degree of certainty about Brexit is that they in fact have no idea what it will mean. This of course does not mean that there is no need to take pro-active action in order to prepare for life in post-EU Britain, and indeed, Big Four firm PwC recently warned that with the possibility of avoiding Brexit altogether shrinking by the day, while the potential for a No Deal exit seems consistently high, companies which do not take a ‘no regrets’ approach to the situation could be left kicking themselves after March 2019.

Despite repeated warnings

While thought-leaders have issued multiple red-flags, however, a new survey has found that a large section of the UK’s business community is expecting business as usual after Brexit, while almost 40% have not taken major steps to prepare for any anticipated Brexit scenario. The Brexit Snapshot report by professional services firm TMF Group conducted a poll of C-level, senior and manager level executives, 39% of which were based in Europe  excluding the UK, 35% in the UK, and 15% in Asia, while 6% of were based in Africa and 5% in North America.

How prepared is your company for Brexit?

Interestingly, the results showed that the majority of business leaders are relatively confident in their preparedness with regards to Brexit. 57% said they were at least as ready as their rivals, while 15% went as far as to say they were even better prepared. At the same time, only 27% were willing to admit they might be underprepared in that sense.

This confidence was partially explained by the fact that a further 42% of respondents expect post-Brexit trade to be business as usual. Considering the potential for World Trade Organisation rules to be implemented on imports and exports between the UK and EU in the event the UK Government pushes ahead with Brexit in the absence of a deal, the suggestion little will change seems a bizarre one. At the same time, constraints on the movement of labour are likely to make sourcing talent more difficult in the coming years, even in the presence of an agreement.

At the same time, more than a third of those probed said their organisations were still in wait-and-see mode, suggesting they expected to have to change operations after Brexit, but were unwilling to act until they can be certain of what needs doing. While in an increasingly tightening and cost-conscious market, this can make sense in the short-term, of the potential scenarios in which the cost of change is weighted against the possible pitfalls of a Hard Brexit, this tactic could cost firms dearly in the long-run. At the same time, just 11% said they had an internal committee established to move pro-actively, and a sparse 7% had tapped external expertise to build a strategy, while 5% had a single person designated to monitor the situation.

More worryingly still, TMF’s research found that of a plethora of precautionary options on the table, 39% of respondents had taken no discernable action on Brexit. While not a single respondent said they had moved more employees to the UK, indicating they at least understood this could cause further complications, a minimal 4% had changed their headquarters’ location. This has proven a difficult proposition for many businesses in recent months, but none more so than Unilever. The fast moving consumer goods giant was forced to scrap plans to move all its upper echelons to the Netherlands, following shareholder unrest at the plan despite suggestions that it would insulate Unilever from Brexit, and consolidate running costs. 

Mark Weil, TMF Group’s Chief Executive Officer, said, “It is worrying that so many firms haven’t started to plan for this huge potential change or proactively seek specialist advice – partly because it presents a risk, but also because, even before the outcome of Brexit is clarified, there is clear work that can be done to minimise disruption post March 2019… Firms need to mitigate risks and seize potential opportunities by putting plans in place now if they wish to stay ahead of the game.”

Taking action

The most popular suggested actions included ensuring cash flow for VAT and inventory post-Brexit, ensuring international contracts remained legal – both cited by 18% of respondents – taking steps to meet changing accounting requirements, and establishing new entities in other countries, at 23% and 24% respectively. This final point was picked up on further by TMF’s study, which questioned business leaders on where they considered to be the most attractive post-Brexit destinations.

Which actions has your company undertaken to prepare for Brexit?

Recently, EY’s Brexit Tracker revealed that since the day of the infamous referendum result, 21 financial services firms have confirmed that they will move some or all of their UK operations to Dublin. This surprisingly made Dublin the most popular post-Brexit location, exceeding the number of institutions headed for Frankfurt (12), Luxembourg (11) and Paris (8). According to TMF, the allure of Ireland remains consistent, with 40% of those polled saying they found it the most desirable of five locations.

Ireland was followed by the Netherlands (35%), Luxembourg (20%), Malta (6%) and Jersey (5%) as possible destinations for new entities outside of the UK. All in all, according to a recent study by an Assistant Professor at UC Berkeley, these account for four of the world’s largest 11 tax havens. None of the territories host an effective tax rate of shifted profits higher than 10%, while Jersey – where the standard rate of corporate tax is 0% – only avoided being named in that study as it is a self-governing dependency of the United Kingdom, rather than a sovereign nation state. 

As such, this particular result arguably shows that businesses are aware of the opportunities that Brexit could present them; angling for softer corporate taxations by wielding their own exit from UK soil as a thinly veiled threat to achieve that. However, with that being said, it is a behaviour that many corporate entities already engage in anyway, even in the absence of a Brexit-type scenario, as a global race to the bottom continues seeing capital being taxed less and less, while civilian tax payers lumbered with the financial burden of subsidising public infrastructure that the users of tax havens are all too happy to leverage for a proportionally lower price.

At the same time, merely leveraging Brexit anxiety to push for tax breaks does not constitute a functional Brexit strategy. In the long-term, unless businesses take into account how every facet of their organisations will be impacted by a sudden shift in regulations resulting from Britain’s withdrawal from the EU, they will simply end up reaping smaller profits to be taxed in the first place.

Commenting on the report as a whole, Mark Weil concluded, “Companies could be carrying out pre-Brexit assessments of their supply chains to ensure continued operations, looking at their international contracts to ensure continued legality alongside taking steps to lock down compliance and accounting regulations which could disrupt business as usual and impact the bottom line.”