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What does the Brexit transition period mean for my business?

The transition period (sometimes called the implementation period) allows the UK and EU to negotiate a new post-Brexit relationship. Although the timescale is very challenging, the UK Government aims to agree a new UK/EU free trade agreement by 31 December 2020.

What will change during the transition period?

In practical terms, most businesses will not be affected by any changes during the transition period. Although the UK left the EU on 31 January 2020, we will continue to follow EU standards and regulations as well as pay into the EU budget until the end of the year.

The UK and EU are expected to agree their negotiating mandates by late February 2020, allowing talks on a future UK/EU free trade agreement to get underway in March. The outline of what will be negotiated is already set out in the Political Declaration.

Both parties want to agree a trade deal with no tariffs or quotas to minimise trade barriers. However, UK businesses importing or exporting to/from the EU will need to complete customs paperwork after the transition period, and be subject to customs checks and controls, since the UK will leave the Single Market and Customs Union. A wide range of other trade-related issues will also be negotiated.

Apart from trade, many other aspects of the future UK-EU relationship will need to be decided. These include:

  • ‘Level playing field’ issues including workers’ rights, environmental regulations and state aid
  • Industry regulations, such as licensing and regulation of medicines, financial services
  • Data-sharing and cross-border data flows
  • Mobility of people such as visa-free arrangements for short-term trips as well as for research, study and youth exchanges
  • Ecommerce, IP and public procurement
  • Access to fishing waters
  • Cross-border travel by air, sea and road
  • The UK’s future access to EU funding in areas such as R&D (Horizon Europe) and student exchanges (ERASMUS)

During the transition period the UK is also able to negotiate free trade agreements (FTAs) with third countries outwith the EU. The emerging priorities for the UK Government include the US, Australia, New Zealand and the Trans-Pacific Partnership countries.

While the UK will no longer automatically benefit from EU FTAs with third countries during the implementation period, the EU has indicated that third countries with which it has trade agreements should continue to treat the UK as an EU member state during this period.

To ensure that preferential trading arrangements continue to apply following the implementation period the UK Government has already agreed a number of continuity arrangements with EU FTA countries. However, agreements with some key markets (such as Japan and Canada) have not yet been reached, meaning that if no agreement is reached before the end of the implementation period, the UK will revert to non-preferential trade arrangements with those markets.

How do I need to prepare my business during the transition period?

The changes taking effect after the transition period are likely to impact widely across business and some will have fundamental implications.

Businesses should act now to identify what the shifts mean for their operations before making the changes to systems, processes, staffing and potentially business models. Time is short.

We already know many changes that will take place following the transition period. For example:

  • Free movement of people will end and a new UK immigration process will be implemented on 1 January 2021, affecting the recruitment of new EU staff
  • Existing EU staff will need to apply for the EU Settlement Scheme. The deadline for applications is 30 June 2021, or 31 December 2020 if the UK leave the EU without a deal
  • Businesses trading directly with the EU will need to develop or access the expertise needed to complete customs paperwork, and factor in the additional costs involved
  • Product markings will change, with the CE mark being replaced by the new UKCA mark
  • Hauliers need to apply for the necessary operator licenses and permits, and understand the rules for transporting certain types of goods (such as live animals, animal products and perishable food)
  • Staff travelling to and from the EU will need to have a passport valid for at least six months

You can find more detailed guidance on the steps businesses should consider in our Brexit checklist

A wide range of other changes will take place after the transition period but the details will not be known until negotiations are concluded.

It is vital that businesses keep their Brexit plans under constant review so they can react quickly once key decisions are made.

What happens after the transition period?

There are two possible Brexit outcomes after the transition phase ends, currently scheduled for 31 December 2020:

(a) A UK-EU trade deal is agreed

This is the UK Government’s preferred outcome: agreeing a new relationship with the EU covering such issues as trade, mobility, travel and security.

However, given the short time available it is important that businesses understand the implications of this. For example, the UK Government may decide to diverge from certain EU standards and regulations, choosing instead to align new regulations more closely with the US or other major trading partners. Also, the UK may continue to comply with some regulations and agreements, deferring negotiations on some detailed issues until after 31 December 2020.

(b) The UK leaves the EU with no deal

If the UK and EU fail to come to an agreement then the prospect of a no-deal exit once again becomes likely. This would have very significant implications for businesses since the UK would need to trade with the EU on WTO rules, bringing in tariffs on a range of exports and imports.

This website will continue to provide up-to-date advice and support as it becomes available. If you have any questions, please get in touch with our support team. If your business needs financial support to help prepare for Brexit, find out more about our Brexit Support Grant.