What is Brexit?
On Thursday 23rd June 2016 a Referendum took place to decide if the UK should remain or leave the European Union. More than 30 million people voted and the decision was made to leave by 52% to 48%. The process of the UK leaving the EU has been shortened to Brexit.
The UK joined the EU, known at the time as the European Economic Community, or the Common Market on 1st January 1973. In today’s society some individuals have only ever lived and worked in a UK that has been part of the EU. However the dissolution of this economic union will no doubt have an impact on both business and day to day life over the next few years and beyond.
In the immediate aftermath of the result Britain got a new Prime Minister, the former home secretary – Theresa May who took over after the resignation of David Cameron. She will now lead the UK through the process of officially leaving the EU and all that this entails.
Negotiations between the EU and the UK will be on-going until a final deal is agreed.
The Story of Brexit so far…
On Thursday 23rd June the UK public voted to leave the European Union by a 52% lead. This leads current Prime minister David Cameron to resign as PM.
“I was absolutely clear about my belief that Britain is stronger, safer and better off inside the European Union and I made clear the referendum was about this and this alone - not the future of any single politician including myself. But the British people have made a very clear decision to take a different path and as such I think the country requires fresh leadership to take it in this direction.”
On 13th July Theresa May officially succeeds David Cameron as prime minister after winning against Boris Johnson, Michael Gove and Andrea Leadsom.
On 29th March 2017 May clears her Brexit bill through the Lords and Commons allowing her to invoke Article 50 and begin the 2 year process to negotiate the UK’s departure from the EU.
Article 50: Is an agreement signed by the heads of state and government of the countries holding EU membership. It gives a very basic 5 point plan for any country wishing to leave the EU. Many experts believe it could take up to 10 years for the UK to completely leave the EU as the UK’s exit must be negotiated and approved by the 27 EU members.
Believing that Labour, the SNP and Lib Dems could try to disrupt the process of leaving the EU within Parliament, May calls a general election (previously scheduled for 2020). On 8th June 2017 the election is held with disastrous results for May. The conservatives lose their majority in Parliament leading May to strike a deal with the Democratic Unionist Party in exchange for £1bn extra funding for Northern Ireland.
On 26th June 2017 Brexit negotiations finally begin a year after the referendum results. The talks, scheduled by the Brexit secretary David Davis, are scheduled in 4 week segments, focussing on key areas that need to be discussed.
Phase 1 – EU and Britain discus the Irish Boarder (June 2017)
Phase 2 – EU and UK discuss their future relationship and transitional phase of leaving the EU (December 2017 – March 2018)
Phase 3 – Cover Trade relations. (July 2018)
During this period the Electoral Commission refers the official leave campaign to the police for breaking electoral law during the referendum campaign. This calls into question the validity of the referendum.
The EU and UK agree to the terms which must be met to complete Brexit including what the UK will have to pay to leave and fulfilling any prior obligations. This also means that any commitments the EU has made to the UK will also need to be completed by the agreed dates for instance if a project is due to be paid by 2030 both the EU and UK will continue with this agreement. Therefore calculating the exact cost of the bill is difficult.
On 15th January 2019 May’s Brexit deal was historically rejected by 230 votes – the largest defeat for a sitting government in history. The vote had been originally scheduled to take place in December but was delayed to allow May to win more support with MPs for her deal. The defeat means that May must adjust her deal until it is agreed by a majority in Parliament and could force the government to apply for the transition period to be extended.
Preparing your business for Brexit
There were some immediate economic reactions to the result of the Brexit vote including a drop in the value of the pound leading to an increase in costs for some firms as well as Britain losing its AAA credit rating and leading to a higher cost of borrowing for the government. The stock market also experienced a high level of volatility immediately after the result of the vote with negotiations also affecting.
It is therefore important to prepare your business for any continuing fluctuations in the market and make sure you are in a comfortable position to adapt quickly to these market changes. However, your Business doesn’t have to act alone and Howard Worth are here to help.
Practical steps and contingency planning
We recommend all companies who operate or trade within the EU to review all contracts and policies and to remain up to date with changing procedures, required documentation and any possible increase of costs that your business could incur.
Multinational companies should review their international strategies to determine whether, and to what extent, they use UK group companies as a gateway to the EU. They can then use the two-year Brexit notice period to devise firm contingency plans based on the emerging shape of the UK’s subsequent relationship with the EU.
Although a Brexit brings much uncertainty, there are potential positives:
The UK is a member of the G20, OECD and WTO independently from its membership of the EU. It will thus continue to be a party to double tax treaties and other agreements that have their basis in these international organisations. Indeed, a departure from the EU will give the UK more freedom over the method and pace of its implementation of the OECD’s BEPS project, and other large-scale harmonising initiatives.
EU-wide measures can make member states less competitive and create dual levels of accountability. For example, the proposed Anti-Tax Avoidance Directive, which includes a General Anti-Abuse Rule requiring member states to meet certain minimum anti-abuse requirements. The UK has objected to proposals to harmonise corporation tax rules (the Common Consolidated Corporate Tax Base) and to introduce a new investor-state dispute resolution system (the Investment Court System), which would apply to all future EU agreements including the TTIP with the US (referred to under Indirect Taxes). If investors balk at measures of this kind, the UK might be viewed as an attractive host state by virtue of no longer being subject to them.