It's not just COVID-19 worrying contractors and freelancers at the moment, but also Brexit – whether or not they have clients in mainland Europe.
While the UK left the EU on 31 January 2020, it entered a transitional period until 31 December 2020 in which EU law is still applicable. So, with the transitional period coming to an end soon, it’s crucial that self-employed individuals are aware of what to do and how Brexit can affect their business.
As accountants, we make sure to stay up to date with the latest Brexit news, so that we can help you navigate the uncertainty around it. And, while this uncertainty is still prevalent, there are a few things you should know – and a few things you can do – to prepare your business ahead of the new year.
VAT Taxation after Brexit
One of the things that contractors will have to consider is VAT. Not all businesses have to register for VAT and pay this tax, only those with an annual turnover above the current threshold of £85,000 (for the current tax year of 2020/21). If your business has an annual turnover below this figure, you don’t have to register for VAT, although you can do so voluntarily.
After Brexit, it’s likely that the UK will leave the EU VAT area as well. This will have an impact on businesses that trade goods with countries within the European Union, and there will have to be changes to the way VAT works for freelancers and contractors in the UK and in the EU.
In the event of a no-deal exit, the self-employed will not be able to access the EU VAT refund system, which will certainly add to the admin business owners already have to do. It may also change how much tax they’ll have to pay. It's also possible that freelancers will have to pay VAT in each country they operate in.
The way VAT works will also change depending on whether you are providing physical or digital services or products.
After all, if you own a business in the UK and sell digital products to EU consumers, you were able to use the Mini One-Stop Shop (MOSS) scheme set up by the EU – this allowed you to submit only one VAT document (which had information from different member countries) in just one EU country. Since the UK will become a third country, you will probably be unable to use MOSS.
Working with International Clients
Another thing to take into account is how providing services and products to EU and non-EU countries will look after Brexit. In many cases, business accreditation is necessary across EU member states, so, after Brexit, self-employed individuals in the UK may need to get separate accreditation if they want to continue working with international clients.
And while many companies in the EU have chosen to work with UK freelancers and contractors, they did so while the UK was still part of the EU, as this meant less admin and frictionless trade. However, now that the transition period is ending, EU businesses may not want to hire UK workers if the process becomes too difficult or if it entails time-consuming paperwork.
Still, it’s worth remembering that, even though EU companies may not want to invest in permanent hires at the moment, the same can’t be said of contracting.
Contractors and freelancers can be hired on a project basis, so it’s easier to engage their services – and safer, considering the current uncertainty. So, even though there may be some issues for the self-employed when it comes to supplying products and services to the EU, there may also be plenty of opportunities.
Employment Law after Brexit
Because many EU employment laws and regulations have been implemented by the UK, there may be some changes after Brexit. However, the UK government has said it has no intention of making changes to the existing workers’ rights, which can help put some contractors and freelancers at ease.
However, employment law cases will no longer be referred from UK courts and tribunals to the ECJ (European Court of Justice). For UK freelancers and contractors in the EU, this is a simpler matter, as employment law will remain the same after 31 December.
If you’re a self-employed EU citizen working in the UK, more information or other requirements may be needed after Brexit, but details have not been decided yet.
Freedom of Movement is Ending
While UK freelancers and contractors can still move freely to and from EU countries, this will end after 31 December. If you’re a UK contractor or freelancer working solely in the UK, you won’t be affected by this. Still, if you have to travel to the EU for work, you may need a visa in the future, although this is still not decided.
If you want to move to the EU after the transition period has ended, you will need to check what is required for the specific country you’re interested in. This includes not only immigration laws but also rules around sole trading and owning a limited company.
Financial Vouchers for the Self-Employed?
The UK government is being urged to support the self-employed with financial vouchers designed to ease the transition after 31 December. Despite the fact that the end of the transition period is close, there is still no trade deal in place, which is leaving many contractors and freelancers in the dark.
Understandably, they’re concerned over what will change for them once the new year rolls around, which is why the Federation of Small Businesses (FSB) is requesting ‘transition vouchers’ to help them. These vouchers would give self-employed individuals a pre-determined amount of money to spend on training, technology and expertise.
After all, according to FSB’s Chairman, Mike Cherry, “the economy is in a very different place today compared to the last time we were told to prepare for a no-deal outcome. Small firms don’t have the time or money to get across new bureaucracy or stockpile.”
Contractors and freelancers are unaware of what may happen once the UK leaves the single market and customs union for good because there is no clear direction. It's crucial that the government clarifies what needs to be done going forward and what post-Brexit trading will look like.
How Can You Prepare for Brexit?
Unfortunately, because no one knows for sure what will happen after the transition period, it’s impossible to say exactly what businesses need to do in order to thrive in a post-Brexit economy.
This doesn’t mean there isn’t anything you can do. On the contrary, you may want to look into some or all of the following:
Register for an EORI
If you’re a UK-only business, you don’t need to worry about this. However, if you trade with clients in the EU (or with non-EU countries), you will have to register for an Economic Operator and Registration Identification Number (EORI). This will allow you to move goods between the UK and the EU, so start looking into this now as there may be a high volume of applications soon.
This is free, which is good news for self-employed individuals, especially those starting out, as it means you don’t have to account for it in your budget. It's also a quick process, so it won’t take up a lot of your time.
Check Government Guidance
Be sure to check the government’s guides and information on what will happen after the transition period. This guidance should be able to answer some questions regarding anything from workers’ rights to IT systems in the event of a no-deal Brexit.
Diversify Your Work
Having several revenue sources is always important for freelancers and contractors, and this will be no exception after Brexit. This can help you to make up for any losses that can occur, so consider all your skills and think about what else you can start doing.
Make Sure You Can Get Paid
One of the major challenges ahead for self-employed individuals who work with international clients is getting paid. So, ensure that you have a system in place to receive payment and that this matches the new rules created by Brexit in order to remain compliant.
Do You Receive Personal Data from the EU/EEA?
If you receive personal data from the EU, you’ll want to make sure you stay compliant with the latest legislation. For example, according to the government, from 1 January 2021, businesses should have Standard Contractual Clauses (SCCs) with EU counterparts if they want to legally receive personal data from users in the EU.
Keep Other Issues in Mind
While getting ready for Brexit can take up a lot of time, contractors and freelancers shouldn’t lose sight of other key challenges, such as the upcoming IR35 reform. You will still need to comply with UK regulations, so make time to continue doing all the admin required for UK businesses, whether you’re a sole trader or limited company owner.
Brexit will impact the many freelancers and contractors that set up their businesses in the UK, but this doesn’t mean everything will be negative. There will still be new opportunities to take advantage of, so make sure you’re as ready as possible for when the transition period comes to an end.
As accountants, we can easily help you to stay compliant with the taxation side of your business, so get in touch today if you’d like to learn more about what we do.