Britain’s small businesses warn profits are being wiped out and operations forced to move to Europe as they struggle to deal with the red tape and costs of trading with the EU after Brexit.
A month after the UK left the EU’s single market and customs union, British SMEs are still working out whether they can afford to maintain once-thriving export businesses with the bloc. For those which decide to continue, it is often at the cost of jobs in the UK as they move operations across the channel.
Others are simply absorbing the spiralling costs of sending goods to the continent, slicing already stretched margins and raising questions over their long-term plans.
Since the UK left the EU, companies face extra courier fees, health certificates and other Brexit costs, as well as duties on goods originating outside the UK, administration of VAT and often the need for operations within the bloc.
Brexit costs have meant that Rivet & Hide, a menswear retailer with shops in London and Manchester, will make a net loss on its EU export business.
Founder and owner Danny Hodgson had been growing EU sales at more than 20 per cent a year since 2012. But since January 1, sales have almost halved, he said.
He used the example of a £265 pair of jeans made in Japan and sold to a customer in Germany from his UK stores. These jeans now face duties and taxes of £88, and shipping costs of £23, including a new £4.50 courier surcharge on all EU shipments and a £5 handling fee for duties.
As a result net profit on the sale will shrink to £45.75, but this is before the costs of overheads such as staff and rent that push Mr Hodgson to a loss. When in the EU last month, the company had been making a comfortable net profit of £104 on the same jeans.
“What are our options,” asked Mr Hodgson. “Increase the price of the jeans by £60? We price ourselves out of the market. Let the customer take care of the fees? Same thing. This is significantly more costly and puts us at a net loss.”
More than a quarter of the UK’s 6m small businesses trade with the EU, according to the membership organisation the Federation of Small Businesses (FSB), exporting products and bringing in supplies.
But, unlike the UK’s largest companies, many lack the resources to easily deal with the sudden administrative burden of the extensive paperwork or to shoulder customs costs and taxes.
“Increasing numbers of small firms are telling us that the uphill climb of managing new EU trade obligations could put them off exporting altogether,” said FSB national chair Mike Cherry.
“That’s a real concern because businesses that sell internationally tend to be among our most profitable and innovative.”
Simon Spurrell, director of the Cheshire Cheese Company and Hartington Creamery Stilton makers, said “food producers in the UK cannot commercially afford to sell direct to EU consumers”.
He has stopped online sales to the EU given the need for a £180 health certificate on retail orders — even as low as £25 or £30 — and will review a planned £1m investment in a new UK warehouse “because the only possible way to sell into EU consumer market is with an investment in an EU fulfilment centre”.
“The US market we already ship to is being investigated as an alternative investment and totally abandoning the EU consumer online sales market,” he added.
Emily Bendell, founder of lingerie seller Bluebella, is another company boss looking at the need to open a warehouse in the EU. “We tried to avoid having an EU entity but now it’s unavoidable,” she said, pointing to the jobs and taxes that will be lost to the UK economy with the new regional warehouse.
Richard Staite, operations director at Shiner, which manufactures and distributes sporting goods such as skateboards, is also being forced to move half his business to the EU, having previously supplied the region from its Bristol warehouse.
The new Dutch operation will add £600,000 to costs in rent and other overheads, but he will avoid the double duty on goods brought over from the US and Asia as well as the rocketing costs of the courier network.
“We wanted to keep the business in the UK,” he said, adding that about half his sales were to EU customers.
John Smedley has also absorbed the extra costs of Brexit although, as a manufacturer in the UK, it avoids tariffs when exporting to the EU. Even so, every shipment costs an extra £9.50, according to managing director Ian Maclean: £5 extra to cover the courier costs of handling duty and VAT, and a further £4.50 Brexit charge.
The company also needs to register for VAT in every country it exports to. It has done so in 12, but is weighing up whether it is worth the hassle of doing so in countries with fewer sales.
Rahul Gokhale, commercial director at Allpex, a London-based plumbing parts distributor that does 20 per cent of its business in the EU and Northern Ireland, said Brexit has erected bureaucratic barriers.
“We have to have EU agents handling VAT and duties for the EU customer, and the logistics chains are simply not yet set up to handle this,” he said. “Boris jumps up and down and says it’s a ‘tariff and quota-free’ agreement, but that totally misses the fact that the UK is an importing country — lots of goods then exported onwards to the EU will pay tariffs at the border.”
Ms Bendell said that one of the biggest misunderstandings about the post-Brexit deal agreed with the EU before Christmas was that it enabled ‘tariff-free’ trade, when in practice many UK companies importing from non-EU countries and then re-exporting to the EU will face charges.
“You can’t make lingerie in our price range in the UK and a lot of our products are made outside the EU — which means a tariff of 6-12 per cent when we ship to customers.”
But this is not the biggest burden. Like Mr Hodgson, Ms Bendell estimates that about 20-25 per cent has been added to the costs of her products, through a combination of inflated courier fees, charges on VAT paperwork and, for bulk trade retail orders, the “substantial fee” of a representative to handle goods in the EU. She has one such representative in Germany, but this means extra costs in transport to send everything through the country.
Referring to reports that the government may be encouraging British companies to shift operations to the EU, Mr Hodgson added: “It’s absurd that the government is suggesting we open in the EU, create EU jobs and pay EU taxes — is that what people voted for?”