1st August 2023

Navigating Brexit’s impact on UK SMEs

Piers Larbey

Partner

In a recent interview with the Financial Times, Make UK, a prominent manufacturing organisation, shed light on the challenges faced by UK businesses in the wake of Brexit due to regulatory divergence with the European Union (EU). The discussion centred around three crucial EU regulations: the impending carbon border tax, plastic packaging rules, and supply chain due diligence laws, all of which pose compliance concerns and potential additional costs for domestic companies.

Prior to Brexit, EU regulations were automatically integrated into the UK statute book, with companies presumed to be compliant across the entire single market. However, as a non-member, this presumption of compliance has been removed and British firms now need to navigate the domestic interpretation of 27 different EU regulatory regimes.

The upcoming carbon border tax (CBAM) provides a good case study for this regulatory divergence. By 2026, EU companies will be required to compile reports on carbon emissions linked to specific imported goods, including steel, aluminium, and fertilizers. While the UK government is consulting the industry about introducing a domestic version of the EU carbon border tax, without a legally binding linkage between the two schemes, UK companies will still need to demonstrate compliance with EU rules.

The Public Information group Britain in a Changing Europe have highlighted that without any agreement, British importers of CBAM goods would need to register with a relevant national authority, calculate the amount of CO2 emissions embedded in their imported goods, and purchase CBAM certificates.

This would be hugely burdensome on small to medium-sized British businesses with customers in Europe with the British Chamber of Commerce advising last year that '[Our members] don’t want to see divergence from EU regulations which makes it more difficult, costly or impossible to export their goods and services'.

Amidst this evolving landscape, UK businesses need expert guidance to adapt successfully. At Hunters, we are well-positioned to provide essential support to clients facing these complex regulatory challenges. We have strong established partnerships with European firms to help negotiate these cross-border issues smoothly and effectively. By proactively seeking expert advice, businesses can confidently embrace the opportunities of a post-Brexit era while ensuring continued growth and success in the evolving landscape of UK-EU relations.