Brexit-proof your contracts

Are you ready for Brexit? The UK has left the European Union but is currently in a transitional period where everything is mostly the same. The UK has until 31 December 2020 to do a deal with the EU, otherwise it leaves on a no deal basis, meaning WTO minimum terms apply

If you are a UK company trading outside the UK — and Telecoms, computer and IT services account for about 7.4% of overall UK service exports — then you will probably want to know how Brexit will affect you. This is true in reverse if you are based in the EU or USA trading with the UK.

Government websites are awash with data and statistics. Oddly, it’s harder to find current data for services but the top countries where the UK exports services looks like this:

UK service exports, Q4 2018-Q3 2019. Source ONS

The UK has done a number of trade deals which should take effect on 1 January 2021 but this list isn’t all that impressive at this stage. It’s easy to see from the chart that most of the UK’s exports go to the EU and USA so it would helpful to business if the UK is able to conclude trade deals in time. It appears the UK Prime Minister is not afraid of a no deal Brexit. This might just be part of the negotiating strategy but in case we end up with no deal you should be prepared.

Personal data flows

Upon a no deal Brexit, the UK will become a “third country”. Personal data transfers will be subject to a decision by the EU Commission that UK data laws are adequate. Even though the UK’s laws are currently aligned with GDPR, the UK’s snooping laws grant GCHQ broad access to personal data. These sweeping powers are what killed off Safe Harbour. We may need our own Privacy Shield and that could take months. Therefore, you should add the EU Commission’s model clauses to your contracts for personal data flows.

Tin

Most of your servers, PCs and other hardware will likely be imported from outside the UK. Without trade deals with the EU and USA, your tin will probably attract tariffs and may be delayed through customs. Even the government’s own forecasts suggest the Dover crossing could face delays of up to 2.5 days and they’re spending £60m on a moveable barrier in Kent to keep cross-Channel traffic moving. Factor this potential chaos in to your buying decisions. Can you upgrade your servers now while everything is normal? If you do it later, can you pass on price rises to customers?

Staff

You might have trouble attracting / retaining staff. EU citizens are leaving the UK and who can blame them? There’s been a 10% drop in the number of skilled worker visa applications as a result of Brexit. Of those already in the UK and trying to stay, many are having difficulty getting their “Settled Status” to remain, even though they have been living here for years or even decades. And now the UK has a new points-based immigration system. We have noticed an increase in requests for visa assistance to ensure key workers are able to remain. If you haven’t already, you should check the status of yours.

Exchange rate fluctuations

A no deal Brexit could see the pound crash further on the foreign exchange market. This will make contracts more or less expensive depending upon whether you’re importing or exporting. You should add a provision to your contract to enable you to adjust the price if the exchange rate fluctuates. Or if the fluctuation is really severe, you could consider adding the ability to terminate the contract. After all, if the deal has gone sour it’s better to be able to walk away from it rather than be stuck. It’s best to negotiate these provisions upfront. Remember, a no deal Brexit is not a “force majeure” event as it’s foreseeable and you can take steps in advance to plan for it.

Set up in the EU / UK

If you are based in the UK and have a lot of trade outside the UK — or vice versa — then you should consider whether to move your business closer to your customer. Maybe establishing a local branch or subsidiary office will help take some of the sting out of a no deal Brexit.

Want help?

There’s much to consider. If you want to make sure your contracts are ready for Brexit, get in touch: frank.jennings@wallace.co.uk or +44 (0)20 7467 8742

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