By Rosalyn Ellis 1 September 2019
So, our shambolic government in the last few days has published a Get Ready for Brexit checklist for all citizens and businesses.
Up to this point, the only official Brexit communications Thameside Media has received from HMRC have been notices to register for an EORI number and read the updated advice for our sector. However, going through the checklist yesterday highlighted a number of other areas potentially impacting Thameside Media and our clients. As SMEs are the least prepared for Brexit, I thought it worth highlighting some areas of concern.
Most people have grasped by now that physical goods which have to be freighted across borders in and out of the UK will be subject to delays in the event of a no deal Brexit. But what about digital products and services – surely they are not impacted? Well, the answer is that the digital world of global transfer may not get stuck in a lorry either side of the Channel, but with the chaotic Brexit looming, the digital world is about to become more expensive, complicated and downright peculiar for British companies.
Below I highlight some effects on digital products and services. Readers are welcome to contribute ideas on ways to handle these and any other areas of concern.
Without the EU Reverse Charge Mechanism, upfront costs for many digital products and services are going to rise – and that includes some of the most popular American software
This point may come as a surprise to many people in the UK – that their American digital products may be affected by Brexit. But what they may not have realised is that the American software and digital services they are using have been priced without VAT courtesy of the EU VAT Reverse Charge Mechanism. US companies that originally charged in dollars have in recent years set up bases within the EU, typically in Ireland, which means they have been able to offer competitive pricing without VAT to VAT-registered companies across the EU including the UK.
On our current trajectory, and as advised by HMRC in briefings, the UK will no longer be part of this EU VAT scheme, and upfront costs will therefore rise by 20%.
Digital products that Thameside Media uses that will be affected by this include the following:
- Adobe – Photoshop, Lightroom, Illustrator, Premiere Pro, Indesign
- WP Engine (the main hosting company used by Thameside Media)
- Getty Images
- Apple software – eg. Final Cut. (NB Apple hardware physical computers and devices already have VAT added upfront after being imported to the UK so will not be affected by the EU reverse charge mechanism … but they may of course be affected by an adverse exchange rate in the event of a chaotic hard Brexit.)
- And a host of other software and plugins…
In particular, businesses with a turnover between about £70k and £150k (such as Thameside Media), which are on the flat rate VAT scheme – we don’t get to reclaim individual VAT elements on software. It won’t just be an extra 20% upfront cost, it will be an extra 20% cost overall.
I have no doubt that behemoth companies like Adobe will react and try to find a way round this situation – perhaps selling to UK businesses in dollars from California (*asks hopefully, just a thought, if allowed!*).
I queried the issue with my hosting company WP Engine (Texas based with a London branch, pricing switched from US dollars to sterling without VAT in the past couple of years) who assure me they are keeping a close eye on the Brexit situation. However, they were completely unable to tell me what pricing strategy they would have after Brexit, whatever the scenario.
Some of Thameside Media’s clients plus our own Maproom sell to customers in Europe, and the sudden additions of 20% to upfront costs, will doubtless affect competitiveness and have a major impact on some businesses.
We can expect tumult in the coming months after Brexit as businesses jostle to survive and compete after the sudden loss of current trading conditions.
Commerce sites selling to the EU will need to change their checkouts
Businesses that have been using HMRC’s MOSS scheme for digital services and plugins that control pricing with and without VAT to EU customers depending on whether customers are defined as consumers (B2C) or businesses (B2B) will need to update the way their online checkouts handle sales to Europe.
Have developers throughout the UK diairised to change all their checkouts at the stroke of 11pm on 31 October? Are we prepared? Of course we’re not prepared! We haven’t even been told what the new rules are going to be! The commerce plugin makers themselves don’t know what to do. Exactly how they need to update is, of course, completely unknown at this stage, less than two months to 31 October. And the average frontend developer or website manager probably doesn’t even realise it’s going to be an issue.
Copyright and Intellectual Property (IP) is going to be affected
I didn’t know about this until I went through the Getting Ready for Brexit checklist yesterday. If you’re selling patented or copyrighted material in the EU, then the rules are going to be torn up on 31 October in the event of a No Deal Brexit. Don’t expect the government website to tell you what happens next. You’re merely told to see if you can still sell your copyrighted or patented products in Europe! This affects any business using those CE marks on physical goods, and, of course, publishers of both physical and digital publications. It will affect several clients of Thameside Media. A baffling and potentially dire situation.
GDPR – data transfer with other European countries will be affected
This is another area that will change though our government can’t tell us exactly how or what to do about it. If you’ve got customer details of people in the EU, or if you send personal data of any sort to someone else in the EU, this is going to be a grey area and potentially illegal. Does it affect databases hosted on cloud platforms or transferring data around European servers. Yes. What can we do about it? *** knows.
Conclusion: the looming Brexit may not be catastrophic for Britain’s digital businesses – one of our few burgeoning sectors – but it is going to be aggravating, weird and expensive for an unknown amount of time.
Comments are welcome.