Looking to expand overseas – a glass half full?
Despite the justifiable concern about the impacts of Brexit and COVID on the UK economy, recent survey results from Kreston shows that many UK entrepreneurial companies’ ambitions to trade overseas remain undimmed.
In fact, many companies in London and the South East see opportunities where others see only obstacles.
Our research, conducted in March amongst 1,109 SMEs, followed by a post-COVID survey of a further 514 companies in May, found that whilst 55% of businesses have cancelled or delayed plans to export to overseas markets or trade internationally as a result of the COVID-19 pandemic, the way forward looks brighter, with 51% of company respondents indicating their view on the importance of international trade to their business has actually increased.
London and South East views
This positive perspective is especially strong among London and South East companies, with 68% of London respondents saying they believe the importance of trading internationally had increased – and 42% of South Eastern companies saying the same.
Nearly 60% of London and South East companies surveyed anticipate, despite the effects of COVID and Brexit, that more than 40% of their revenues will come from international trade within the next 12 months. And 52% of London and South Eastern business consider it likely their companies will consider expanding their international trade in the next 3 years.
Broadly, London and South Eastern businesses appear more positive about the future potential than their peers across the UK, perhaps because geography and London’s international links work in their favour.
UK perspectives on the future of overseas trade
- 40% of UK business leaders surveyed expect to see import trade increase.
- 45% of UK business leaders expect international trade to return within 12 months, suggesting they are expecting a v-shaped recovery.
- Of those businesses that were not trading internationally before the outbreak of COVID-19, 34% of UK respondents say they are likely or very likely to expand internationally in the next three years.
- 39% of business leaders believe COVID-19 will provide opportunities for their business.
COVID-19 has, unsurprisingly, placed businesses under varying degrees of stress and temporarily halted much international trade – 80% of businesses have told us that they are under a little or a lot of stress, and that 55% of them have delayed or cancelled plans to explore export markets or trade internationally as a result.
Despite this, our research shows that UK businesses remain outward looking, generating considerable revenues from international markets.
Nevertheless, there are undoubted complexities and perceptions of international trade that need to be overcome.
There are challenges
The biggest concerns for UK businesses trading internationally are tax, VAT and duties (23%), currency fluctuations (20%), and tariffs and trade barriers (19%). Red tape, the cost of international trade, logistics, and concerns over getting paid are all very real barriers to international growth. As we look to redefine our position on the world stage, against a backdrop of Brexit negotiations, these remain live issues.
As a former in-house Tax Director for several multinational companies I can vouch that it’s important to have properly considered the tax and duty implications before trading internationally, whether exporting, importing or setting up a new overseas operation: it’s unlikely to drive your whole overseas sales or manufacturing strategy – but it can frustrate or impede your progress unless well organised.
There have been many issues to do with supply chains in preparing for the potential implications of Brexit, whether contractual and Customs procedural aspects, or where the current structure may lead to additional, say Duty, costs. But there are also issues that we have seen within the last two years which have present well before Brexit was even a term we have heard of, but which HMRC seem to have woken up to, probably in anticipation of the more common issues that are likely to arise next year when our EU transition is over. For example, we have seen HMRC challenge the zero VAT-rating applied to exports of goods leaving the UK and EU. HMRC seem to be paying more attention now to the process clients use to export their goods and the evidence they keep to substantiate nil VAT.
We saw HMRC challenge one business which was unable to produce well organised evidence there and then at an HMRC visit, even if they managed to collate this thereafter. It was an unnecessary disruption for the business. Another issue was that the description of goods on export documentation completed by forwarding agents was inadequate. HMRC’s requirements in this respect are set out in their notice and form part of the legislation. Businesses are certainly going to need to get to grips with all commercial, compliance, clearance and administrative requirements before January if they are to trade freely and keep up with the competition.
It’s clear that there are tangible benefits to trading internationally for ambitious companies. While for some it may seem a risk too far (literally) for others it’s an opportunity that broadens the revenue stream, reduces the risk of reliance upon a single market, and reinforces growth.
Perhaps the glass really is half full – for those that perceive it so.
If you would like to discuss the topics explored in this article, please contact us.
Our Trading internationally report is available here.
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