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How leaving the EU will affect your small business

Posted by Tom West on Aug 14th, 2015 | News and opinion

Crunch - How leaving the EU will affect your small business - EU and British flags

After the seemingly limitless media exposure and enormous it came as a surprise to many that UKIP failed to secure more than a single seat in the 2015 General Election.

Nonetheless, the eurosceptic party’s pre-election earthquake created enough noise to get what they wanted – a guaranteed In / Out referendum on the UK’s membership of the European Union. With the big vote approaching in 2017 it’s going to be nigh-on impossible to avoid the debate at the water-cooler.

What is the EU?

The European Union is an economic and political union currently consisting of 28 countries. The UK has been part of the Union, then called the EEC (European Economic Community) since 1973, and as a result have been part of a single market which allows free movement of goods, capital, services and people between member states.

Each of the countries within the Union are independent but they agree to trade under the agreements made between the nations.

The impending referendum marks the first time the public have had a say on the UK’s membership since 1975, when the electorate voted Yes by 67.2% to 32.8% to stay in Europe.

Should we stay or should we go?

David Cameron, an advocate of the ‘Remain’ vote, has welcomed the referendum as an opportunity to increase public awareness of the functions and benefits of the EU, saying:

I think this is the moment when Britain stops sleepwalking towards the exit.

Judging from the opinion polls however, there doesn’t seem to be much sleepwalking going on. In fact, the No proponents have their work cut out, with the biggest majority ever recorded in the UK supporting staying in (45% In, 33% out) in May 2015.

The current mood amongst small to medium business owners is even more heavily in favour of staying in. Of those business owners polled by YouGov, a majority said the UK’s membership of the EU had a positive effect on their business.

Much discussion will be had on the implications of staying or leaving, but let’s take a look at them from a predominantly business angle.

Arguments for staying in the EU

Ease of trade

Close to half of all UK trade takes place between us and the 27 other member states. Rather than dealing with 27 separate sets of legislation, our membership allows UK businesses to freely access 505 million potential customers (as opposed to just 64 million in the UK).

Leaving the EU would mean we would no longer avoid the extra charges and pedantic customs procedures involved in trading with EU member states. This may be a fixable issue, however, if the UK is able to negotiate a free-trade agreement with the EU in the same way that countries such as Singapore have done.


A British exit, or ‘Brexit’ would lead to a hugely diminished selection of candidates to choose from with regard to employment, as currently UK businesses are free to employ workers from any of the member states without the rigmarole of obtaining a work permit.

James Chappell, founder and CTO of tech-startup Digital Shadows, explained to ITpro how remaining part of the EU is vital to his business’ success:

[The UK has] great connections with Europe in terms of sourcing talent from the EU without requiring a visa, and that gives us access to a much larger talent pool than we’d otherwise have,” he said. “It’s a really great environment to start a small business and to try to grow it.


David Kirk, Sales Manager at UK Bike Store, believes standardised EU rules have a positive effect on his business:

It legally forces all the dodgy companies to play at your level. They can’t undercut you by not backing up their sales with the right level of support.

“As well as obviously helping the consumer this also helps the environment, since products have to legally last a reasonable amount of time or the retailer has to refund, it means they are less likely to sell cheap rubbish that lasts 5 minutes and goes in the bin.”

Of course, whether you think handing over the regulatory decisions to the UK Government is a good or bad thing will likely depend on your opinion of our current crop of MPs.


Scotland’s First Minister Nicola Sturgeon described the prospect of being taken out of the European Union against Scotland’s will as “democratically indefensible”. She added that the impact of leaving the EU on the Scottish economy would be “disastrous”. Polling suggests that Scotland is consistently more pro-Europe than the rest of the UK.

If the UK leaves the EU, this may be the catalyst for Scotland having an even stronger argument for independence, which could have huge ramifications for SMEs. According to the Centre for Economics and Business Research, English businesses could see an influx of competition nationally. As many as 40,000 jobs could move to England if Scotland breaks away, as many of them depend on customers in the rest of the UK.

Arguments for leaving the EU


Although mythbusting hub Fullfact rejected Nigel Farage’s claims that the UK pays £55 million per day for membership, they did conclude that the UK contributes a daily £24 million (net) to the EU – funding that it is proposed could be directly invested into supporting British SMEs.

Red Tape

Supporters of the No campaign believe that there are too many rules inflicted on EU businesses which stifle their ability to compete. According to the Centre for Economic and Business Research, small firms are wasting 28 hours a week on red tape, costing the small business economy nearly £5bn every single year; a figure it is claimed would be greatly reduced should a Brexit take place.

UKIP’s Small Business Spokesman, Margot Parker said:

“Fewer than one in ten British businesses trade with the EU, yet 100% of them must comply with thousands of EU laws on employment, waste management, environmental regulations, product registration, health and safety, etc. This burden is destroying small businesses and helping destroy our economy.

Norway and Switzerland

Norway and Switzerland, both non-EU countries, export far more per capita to the EU than the UK does. Eurosceptics argue that this is evidence that EU membership is not a necessity in order to have a strong trade relationship with the European market (though UK businesses would still be required to adhere to the EU’s trade legislation if they wished to continue trading in Europe).

What changes do people want?

To most, the EU is not a black and white, in or out issue. The unanimous stance across all Westminster parties (bar UKIP) as well as the majority of small business owners is to remain part of a reformed EU, rather than throwing the baby out with the bathwater. Mike Cherry, the Federation of Small Businesses’ national policy chairman said:

The European Commission understands our concerns but MEPs need to have a better understanding of them. The European Parliament often stymies measures that would help smaller businesses. Legislation must be proportionate to the resources that small companies have”.

Should the most likely scenario happen and Britain votes to stay in, here are a couple of points the small business community have voiced a need to change:

Working Time Directive

Pushing for more flexibility to the 48 hour-a-week working time restrictions is on the FSB’s priorities for EU reform negotiations, and David Cameron has concurred, saying that this will be one of the major focuses.

These restrictions were initially implemented in 1993 in response to stress, depression and illness being caused by employees overworking, but according to The Telegraph, Mr Cameron told colleagues that he would like companies to be able to opt out.

EU VAT legislation

Controversial new VAT legislation introduced by the EU this year mean that the amount of VAT charged for digital services will be set by the rate in the consumer’s country. This has led to a backlash from sole traders and micro-businesses, many of whom claim that these changes are impossible to comply with, resulting in them either having to close their business or break the law to stay afloat.

Despite this, Clare Josa of EU VAT ACTION (a campaign for the reworking of this legislation) reaffirms that membership of the EU is paramount to being able to contribute to the discussion:

I’m going to a conference of EU Finance Ministers in September where we will hopefully get these unitentionally impossible VAT laws rewritten, but that wouldn’t be possible if the UK left the EU. The new rules are closing down UK businesses and at least this way we have a say.

What do you think? Should we stay or should we go? What reforms would you like to see? Let us know in the comments below.

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