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Will the service sector be ready to trade in the EU post Brexit?

With Britain’s exit from the EU fast approaching, professional and business services firms across the UK have no time to waste in preparation. With swift action, they could reduce disruption and potential future damages.

How will Brexit impact people in the service sector?

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Within the services sector, there is thought to be around 4.6 million people or 13% of the UK’s workforce – within HR, advertising, accountancy, legal services, engineering, market research, audit, architecture, recruitment, PR and management consultancy firms. If the UK leaves the Single Market without a deal or without securing any mutual recognition of qualifications, the sector could be severely impacted due to its dependence on the EU.

A recent report produced by the House of Lords’ services subcommittee has issued concerns that the needs of the service sector are being ignored by UK negotiators. If this isn’t addressed, many companies could lose contracts and subsequent jobs when the Brexit transition period ends. Even if a Canada-style trade agreement is reached, services sector exports could still face major trade barriers.

In agreement with the reports concerns, Carolyn Fairburn, Director-General of the CBI stated her ‘disappointment’ that the needs of professional and business services firms have not been addressed during the negotiations.

The impacts of a No deal on the service sector

The potential issues that could arise for firms if there is no deal, or a deal that fails to address non-tariff trade barriers include;

  • blockages caused by jurisdictional reservations
  • A lack of recognition of professional qualifications
  • Data transfer issues
  • Loss of passporting rights and reduced business mobility
  • Some UK-specific corporate structures such as LLPs may also not be able to operate.

Although many larger corporates have found the resources needed to prepare for an ambiguous future, many SMEs in the services sector have not yet prepared a Brexit plan that will allow them to continue trading in the EU from the start of next year. Steps must be taken now, recognising that country-by-country preparation is expected to be essential.

Prior to planning, firms should pursue advice from applicable trade bodies to establish what matters could arise as a consequence of departing the EU Single Market at the end of the year. The guidance will vary depending on the type of business. Another useful source of advice includes the Government’s transition checklist, which will deliver tailored guidance built on responses given to particular questions such as ‘does your business currently hire from the EU?’ And ‘do you provide services to customers in the UK?’

When drawing up a Brexit transition plan, firms should contemplate the succeeding specific issues:

Data transfer

Prior to the UK’s withdrawal, it has been possible for firms to direct personal data from the UK to the EU without added procedures. However, if there is a failure to agree a deal, it will no longer be possible for European businesses to transfer data freely in this way. If UK-based firms are providing services in the EU, but don’t have any EEA offices, branches or establishments, it may be necessary to appoint an ICO European representative.

Business mobility

There will also be more restrictions on travel, with possible introduction of permits or business visas and these are likely to vary at a jurisdictional level. Some industries will be more affected than others such as in financial services firms, as they may not be able to deliver services to customers in the EU without setting up an office within the Single Market and hiring staff locally.

Embedded services

Furthermore, some businesses will be trading both goods and services in the EU and this could bring added difficulty. For instance, an architectural practice could be providing plans for a new building project involving shipping goods. But professional architects may also be required to visit the site to communicate with stakeholders and share detailed drawings in advance. In these cases, it helpful to plan to avoid issues in the future.

Professional qualifications

If the company operates in a regulated profession, they will need to check whether relevant UK professional qualifications will be recognised. Firms can do this by checking the European Commission’s Regulated Professions Database and contacting the ‘single point of contact’ for each country.

Intellectual property rights

All current EU patents will not be affected after the end of the transition period. Though, they will be affected after that date. For instance, EU trade mark registrations will remain to protect trade marks in EU member states, but not in the UK. It is accepted that the UK intellectual property office will ensure protection of all existing EU trade marks, though business with applications pending at the end of the period consequently may need to apply for it.

Hiring EU staff

To hire EU workers after the deadline, businesses will need to follow the points-based ‘skilled worker’ route. Positive news to UK businesses, some of the criteria for this scheme have been calmed lately.  For example, the cap on numbers of migrant workers being hired has been suspended and the thresholds applied to ‘skill’ and ‘pay’ level have been reduced, with some limited scope to ‘trade’ points between certain categories. Workers from the EU wanting to come to work in the UK will require an offer of a job from a licenced sponsor. For an employer to become a sponsor they would need to apply to the Home Office and prove that their systems and personnel management are adequate to allow them access to the EU labour market.

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