June 24, 2016

EU Referendum results: What does it mean for startups?

This morning we all woke up to the news that Britain has voted to leave the EU.  Regardless of the reasons for this outcome, now we must ask ourselves what this means.  

 

Entrepreneurs, startups and founders will be shaken, thinking where they stand and what’s going to change.  Though, technically, nothing will change in the immediate future, what we are entering now is a period of uncertainty in the economic landscape, in particular for all stages of startup funding.

 

The government and banks have undertaken some contingency planning for this as seen in a statement made this morning from Bank of England governor Mark Carney:

 

“We are well prepared for this.  The Treasury and the Bank of England have engaged in extensive contingency planning.”

 

“UK banks have raised over £130bn of capital, and now have more than £600bn of high quality liquid assets.  

 

Why does this matter?

 

This substantial capital and huge liquidity gives banks the flexibility they need to continue to lend to UK businesses and households, even during challenging times.

 

Moreover, as a backstop, and to support the functioning of markets, the Bank of England stands ready to prove more than £250bn of additional funds through its normal facilities.”

UK_Outline_and_Flag.svg copy

 

 

What does all of this mean?

 

Tax

We do not expect that S/EIS, EMI schemes and R&D tax grants will be affected, as they are part of the Government’s commitment to building an entrepreneurial society and have been an established part of the tax incentives available for many many years.

 

The government has said during the lead up to the referendum that they expect to hold an emergency budget to address the funding shortfall they expect as a result of the uncertainty following a leave vote.

 

We expect that the planned cut in corporation tax to 17% planned for 2020 will go ahead together with the other changes announced in the 2016 Budget.  

 

If an emergency budget is held to raise additional tax revenue, it is likely that attention will be focused on VAT and Income Tax/NIC.

 

Grants

We can expect to see reductions in any future unappropriated grants with EU funding.  TSB & Horizon 2020 will tighten the straps on grant access.  

 

Anything appropriated from EC budget to date and committed we do not expect to be affected.  However, due to withdrawal from the EU we expect there to be a lack of grant funding to be available from Europe and this is unlikely to be replaced by direct UK government funding until contributions to the EU have ceased.  

 

 

What isn’t affected:

 

Importantly, while we are likely to see a significant shake up in trade with the EU once the leave process has been completed, there are already measures in place that mean certain sectors of the digital economy will not be affected.  

 

Businesses that supply digital services will not be affected by any withdrawal from the EU as the rules on the digital supply of services implemented in January 2015 means that world-wide businesses trading with EU already have to apply VAT at a country level.  While there will no doubt be changes in how the reporting is done once the leave process has been completed, the playing fields will not be changing for UK based businesses.

 

E-commerce businesses that make distant sales to other EU counties at scale are already impacted by the rules on individual country registration limits e.g. €32,600 in France, €17,500 in Germany and €60,000 in Italy.  So for businesses that have hit scale there will be no change, regardless of the vote to leave.

 

 

As usual we are keeping our eye on the changes and will report back as we know and see more of the current state of things evolving.  But if you have monthly subscriptions to services outside the UK like your Dropbox account, you may want to keep an eye on those costs as the pound plummets.  

 

If you want to know any more or need advise on how the EU exit affects your business, please feel free to get in touch with us here: talk@ihorizon.co.uk

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