One big news headline in June 2016 was the history-making decision of British voters to exit the European Union.
The markets collectively gasped and currencies went for a bit of a spin at the news, as many did not believe that the vote would be for an exit.
At this stage, Brexit tends to leave digital businesses owners with more questions than answers, so we thought we’d sift through what we do know and what some experts think we need to watch for in the future.
What Does Brexit Mean?
Brexit is simply the abbreviation for “British Exit” from the European Union. Citizens voted to leave or stay with "leave" winning by a margin of 52% to 48%. This result means that Article 50 of the Lisbon Treaty comes into play, which provides the clause and steps to take for the instance of a member state wishing to leave the EU.
While an exit will probably take two years from the time Britain gives official notice that they wish to trigger Article 50, there have been other political reverberations around Europe as other countries react. For example, Spain has made calls for joint control of Gibralter, calls for a second Scottish independence referendum have been sparked and Sinn Fein is demanding a vote to unite Ireland and Northern Ireland once again.
This has created a somewhat unsettled political landscape as it is uncertain what the future holds. The significance of being an EU member is that member states enjoy trade deals, freedom of movement between countries and a single market for capital and services. It’s also worth noting that Europe has seen its longest period of peace between nations since the inception of the European Economic Community in 1957.
Britain’s pending exit means that it will need to negotiate trade agreements separately with foreign countries. There is a question mark over what will happen to British citizens currently living in EU countries and EU citizens living in Britain.
Besides those points, for business owners, the big questions are what happens over trade and taxes. What happens with that VAT you’re currently paying? What about other money matters?
An almost immediate effect of the Brexit vote was that the value of the GBP plummeted to its lowest levels since the 1980s. If you are based in the U.K. or at least buying and selling using GBP currency, then you’ve probably already felt an impact from Brexit.
Many online services you may be using (for example, SaaS products) are billed in USD or EUR. With the hit taken to exchange rates, suddenly those who are used to paying a certain amount of GBP are feeling the sting of higher prices.
On the other side of the coin (pun intended), anyone paying for services sold in GBP with another currency will be feeling that they now come out better off once the bills are paid.
VAT And Trade Rules
For digital business owners trading in the UK and Europe, collection and payment of VAT has been of concern for a while now. You might be worried about new layers of complexity, but the short answer is that nothing has changed - yet.
As it stands, Britain is still an EU member until they have triggered Article 50 and completed the two-year exit plan. This means that the rules already established for VAT and other taxes are still in place for now. The referendum was not legally binding upon the British Parliament, however, as it was a democratic process, it seems unlikely that they will ignore the vote result and choose to remain.
In fact, of course we also don’t know what Britain’s relationship will look like with the EU if it does go ahead with Brexit. There’s also a chance that similar tax and trade treaties will be made.
The main point right now? As British Chancellor for the Exchequer George Osborne stated, Britain is still part of the EU and there is no change to legislation in any way yet.
Upcoming Data Protection Laws
Digital business owners currently operating anywhere within the European Union may have heard about the EU General Data Protection Regulation (GDPR) set to come into force in 2018.
This legislation is broad in scope and will bring in new regulations pertinent to digital business owners, requiring them to comply in protecting all of the data they collect. Among the changes this new law will bring is that it covers a wider scope of data, whether that data is truly personal and can identify a person or not.
Does Brexit mean UK-based digital businesses can ignore this? Well, no. This law comes into effect in 2018 at which point, the UK will most likely still be an EU member. Even it the UK did exit by then, there is a high chance they will have their own similar law.
What About Foreign Businesses and VAT?
If you think Brexit means you won’t have to pay VAT for your UK customers, you can most likely think again. As long as Britain is still part of the EU, then yes, you do have a VAT requirement to make.
If Britain does exit the EU, this is not necessarily the end of VAT or similar sales taxes. The UK will need to fund themselves somehow and it seems unlikely that they will want to give up a lucrative source of revenue such as VAT.
Where Should I Register for VAT?
If you are a foreign business and have already registered with a OSS (one-stop shop) in the UK for tax filing purposes, nothing has changed for you at present as the regular rules for collecting and filing VAT are still in place.
Foreign businesses who are not yet registered for VAT with a OSS should consider registering somewhere other than the UK at this point. You have the other 27 EU member states as an option for now, including Ireland, for any businesses who may have thought to register in the UK in order to file with a country where English is the native language.
What About My UK-Based Business?
For digital businesses that are based in the UK, as stated, nothing is changing until Article 50 is triggered. Even then, it’s still a fairly long road to hammer out the details of the British exit. One of the implications is that you will eventually lose your intra-community trading status, meaning your status will depend upon any agreements the UK government makes with the EU.
It’s worth pointing out what other non-EU states in the area already do. Norway is not a member of the EU but negotiates based on being part of the EEA (European Economic Area). Switzerland also has a series of bilateral trade deals. Most economists are predicting that not a lot will change, but the application of it may slightly.
The full impacts of the Brexit vote on digital businesses are still unknown. For now, until the British government decides in invoke Article 50 of the Lisbon Treaty, the financial and regulatory environment remains the same as they are still EU members.
If your business deals with GBP, you can expect some currency woes as we already know the GBP responded to the exit by dropping to low rates. If you are UK-based, for now you should keep doing what you were before.
If you are a foreign digital business looking to register for VAT, the suggestion is to look outside of the UK to another EU member for registration and OSS. Once Britain officially opts to exit, there will be a two year period to decide details before they are gone, so if you don’t want disruption, we’d choose another member state.