British businesses are pulling out of Europe due to costly new paperwork associated with Brexit.
Many small businesses — and even some larger ones — have stopped shipping goods to customers based in the EU and Northern Ireland due to new rules that came into force on 1 January.
“It’s easier to for me to send products to Hong Kong than it is to send products across the channel,” said Rafael Rozenson, the founder and chief executive of Vieve Protein Water.
Post-Brexit, UK businesses shipping to the EU must now pay VAT and fill out paperwork detailing things such as the country of origin of the items being moved. Many businesses were left unprepared due to the last minute nature of the deal, which was struck just a week before it came into force.
Adam Marshall, director general of the British Chamber of Commerce, said the new rules were a “rude wake up call” for businesses and were forcing many to “take very logical and very rational decisions about where their customers and suppliers are”.
“Every business runs with its P&L very firmly in mind,” he told Yahoo Finance UK. “If you go from a situation where you have a tight margin on a product that you’re selling to a customer in Europe, and because of all of this new paperwork and bureaucracy that margin is erased, you may well take the decision to stop serving those customers because it’s not economic. You can’t make any money out of it.”
Marshall said businesses selling perishable goods and those selling directly to consumers were among the hardest hit by the new rules.
Sally Wade, the founder of healthy snack box business Treat Trunk, said the new rules had forced her to pull out of Europe just as she was gaining a foothold there.
“We found it was a lot easier to acquire customers outside the UK due to lower Facebook ad acquisition costs and a higher interest in healthy eating, so we were really pleased to be growing our European customer base,” Wade told Yahoo Finance UK.
The new rules are “unmanageable” for a business like hers because of the variety of goods included in her boxes.
“We had an absolute nightmare trying to figure out which codes to use and the implications of import tax,” she said.
“We’ve had to halt any more orders coming in from the EU and will likely have to cancel the subscribers we have, which is really very depressing since many told us they would be a customer for life. I’ve had an email this morning from a lady in France wanting to subscribe and I had to turn her away.”
A notice on the website of London-based spirits retailer The Whisky Exchange says it is no longer shipping to the EU due to “the lack of clarity over cross-border shipping rules”.
The Whisky Exchange had sales of £25m in 2019. It parent company, Speciality Drink Limited, was “partially reliant on some of its EU customers and suppliers,” directors wrote in accounts filed last year. The company said it was “diverting its exports to the USA and... looking for alternative sources of supplies.”
“Once a clear post-Brexit process has been established regarding cross-border shipping to the EU we hope to resume services as soon as we can after that,” The Whisky Exchange said on its website.
Even some larger businesses are facing disruptive adjustments. Amazon stopped shipments of wine and spirits to Northern Ireland at the start of the year and is planning to stop delivery of certain other items — such as supplements and medicines — from the start of April. Marks & Spencer has complained about the impact of the new Brexit rules on supplies of Percy Pigs it ships to Northern Ireland.
Government ministers have repeatedly said issues with cross border trade are simply “teething problems” that will resolve themselves in time.
“I categorically reject any assertion that all of the problems that we are seeing are down to teething difficulties alone,” Marshall said.
“Many of the barriers and issues that companies are now experiencing are structural and permanent in nature. A lot of people have significantly higher costs, longer lead times, significantly more uncertainty in supply chains and a lot of that is probably here to stay.”
Marshall said bigger businesses would likely find workarounds but small and medium companies would struggle and could be forced to give up on Europe for good.
“For many other companies, smaller ones in particular, those sorts of solutions aren’t necessarily available to them,” he said. “They may readjust where they trade and how they trade accordingly.”
For Vieve Protein Water, exiting Europe would be a major blow.
“20% of our business goes to Europe and I just don’t know how we’re going to make that up this year,” Rozenson said.
He has already taken the decision to abandon direct to consumer sales in Europe due to additional cost and will take a decision on whether to give up on wholesale goods in the next few months.
“At the moment, I don’t even know if we can get our product across the border,” he said. “We’ve had one pallet of orders that’s been delayed for two months. The products still in the UK — it hasn’t even crossed customs.”
If Rozenson does decide to keep going, he faces the prospect of filling out 20 to 30 additional sets of paperwork each month, among other costs.
“Even simple things like VAT registering in every country — that’s like €1,000 [£886] you have to pay an accountant across every market you serve,” he said. “For us, five markets, that’s €5,000 — that’s more profit than we do in most of these countries.
“I don’t have the energy or the mental strength to deal with all of the complexities involved now. I’m almost at the point where I say: it’s too complicated to make it work.”
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