How Will Brexit Impact eCommerce?

If all the forecasts and projections are to be believed, there is no stopping the trend towards consumers turning towards eCommerce merchants rather than bricks and mortar retailers.

That’s especially true of the UK. If Napoleon’s famous quote was restated today, it could be: “Britain is a nation of online shoppers.” With 87% of British people aged between 16 and 75 shopping online, it is more popular here than anywhere else in the world. The lockdowns due to the global pandemic in 2020 accelerated this trend: eCommerce grew by 46%, despite the fact that retail sales fell by a record 1.9%.

The revenue for the UK’s eCommerce market is projected to reach over 75 million pounds in 2021, building on a market which is thought to have reached £193.5 billion by the end of 2020.

But there is one big question on the minds of UK eCommerce merchants.

What impact will Brexit have on eCommerce in the UK?

Let’s take a closer look.

Previous predictions

First, let’s look at some previous predictions as to what Brexit might mean for trade between the UK and the EU more generally.

We all remember those long and painful negotiations to leave the EU. The UK government secured a last-minute deal, but many can be forgiven for not knowing all the details of the final agreement. Perhaps this is part of the reason why as late as June last year up to 61% of British businesses claimed that they had made no preparations for Brexit.

One thing that many were certain of, however, is that Brexit would involve more paperwork when dealing with customers outside the UK. One study found that 22% of British respondents believed that there would be slower delivery of goods from the EU after Brexit.

The British government did its best to manage these fears. It previously announced that there would be no non-tariff barriers to trade between the UK and EU, but after intense negotiations this wasn’t achieved.

However, the government argues that, in the long-run, leaving the EU will cut red tape elsewhere as UK companies will no longer have to meet many of the EU’s stringent regulations.

A brief case study: the fashion industry

Fashion is the largest sector of the UK eCommerce market, making up 30% of the nation’s total share and contributing approximately £35 billion to the nation’s GDP.

By some accounts, things did not get off to a great start for the industry this year. In late January, an open letter signed by a number of leading industry figures stated: “The deal done with the EU has a gaping hole where promised free movement for goods and services for all creatives, including the fashion and textiles sector, should be.”

The letter warned of a range of negative effects for UK-based retailers, manufacturers, SMEs and creatives. These included “costly work permits”, “a mountain of paperwork” and trained professional shortages.

It isn’t all bad news though. There are positive signals coming from the industry, too, such as fashion brands investing millions in a UK hub and the UK hosting international fashion upcoming events such as the Institute of Positive Fashion Forum (IPF Forum).

VAT and eCommerce

One of the causes of the increased paperwork mentioned in January’s letter is the new and varied VAT rules UK companies must comply with.

VAT now needs to be collected at the point of sale for products and services rather than from where the goods were imported.

One way to deal with this is by having the UK seller requiring that their EU customer pay on receiving goods. This can end up adding up to 25% to the cost for products costing more than £135.

This means that some UK-based retailers have lost business in the EU as clients are put off by new charges. A recent study by Episerver found that 76% of customers would be put off from making purchases if the shipping costs were too high.

VAT isn’t the only area of extra bureaucracy.

There are a number of other issues businesses must take care of if they want their products to get to their EU customers.

This particularly impacts smaller firms who don’t have the resources and expertise to cover all the necessary legal and accounting issues. One tax accountant told Ben Chu of The Economist that he estimates 2,700 small UK firms will be negatively impacted in this way.

The UK Fashion & Textile Association’s (UKFT) offers free guides on these issues on their website. Some of the steps that businesses need to think about include:

  1. Costing Your Product (Tariffs & VAT) Tariffs when selling to the EU
  2. Moving Goods and Trade Documentation
  3. Other Legal Issues
  4. Labelling
  5. Movement of people and travelling to the EU

These requirements have led to some UK businesses deciding to temporarily stop doing business with the EU, fulfilling – in the short term at least- the expectations of those that felt Brexit would result in less trade with the EU.

Colombia Business School professor and economist Geoffrey Heal recently told Vogue Business that, “Each item exported from the UK now needs at least 20 pages of documentation, to show that it conforms with a whole range of EU regulations.”

Vice versa

The issue works the other way, too.

About 11% of all goods bought online in the UK come from the EU. From a consumer’s point of view, one of the benefits of being in the single market was the ease with which European goods could enter the UK.

But now EU businesses have to register with HMRC to cover UK VAT; something which might put them off selling here. There is little doubt that this could potentially leave the online shopping-addicted UK consumer with less choice.

The future is innovation

EU regulations aren’t going to go away but UK-based businesses will inevitably learn to adapt to them over time. Given the UK’s reputation for innovation, especially where trade and finance are concerned, it is likely that new technologies and services will emerge to simplify the process.

In March 2021, Tom Coppock from Kofax stated, “A new breed of intelligent automation makes it possible to cope with Brexit’s paperwork and adapt your workflows to increasingly complicated import and export procedures.”

How long wide availability and adoption of such tech remedies takes depends on the decisions of thousands of business owners and politicians over the coming months and years, both in the UK and the EU, as well as millions of consumers.

Ultimately, the value that UK-based eCommerce brings to EU clients (and vice versa) hasn’t gone away.

While the profile of goods and services traded may shift towards items where there is less friction, business owners are likely to find that supporting technology will step up to help reduce impact of bureaucracy.

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