Impact on SMEs

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Overview of impacts

Brexit is a major challenge for small and medium-sized businesses (SMEs) and has had a major impact on SMEs. Larger companies are better resourced to deal with the changes.

SMEs are enterprises with less than 250 employees and annual turnover less than €50 million and, in aggregate, are important to UK goods trade. In 2022, SMEs contributed 32% of the UK’s total import value and at least a 26% share of total value of goods exports (a further 16% was attributed to businesses of unknown size). In addition, 77% of SMEs were part of wider supply chains (FSB, 2018).

Pre-Brexit, over 200,000 UK companies (mainly SMEs) had only ever traded with the EU on a tariff-free, near frictionless, basis within a common VAT area. Post-Brexit, UK-based exporters to the EU require their own trade infrastructure and new capabilities to deal with customs checks and to certify the origin of goods.

The main consequences are:

many SME exporters do not have, or cannot afford, the expertise to deal with the complexities of import duties, transit documentation, additional VAT considerations etc.;
many firms either have to stop exporting or establish commercial entities within the EU to service customers (and register in the EU for VAT purposes) (source: British Chambers of Commerce);
EU-based business customers and suppliers now find UK SMEs less attractive to deal with.

See Appendix B for three case studies that bring the impact on SMEs to life.

Top challenges for SMEs

According to the FSB (2023), the top challenges facing SMEs that trade were:

high shipping costs (61%), losses and delays in transit (54%) and lack of clear guidance (45%).
supply chain disruption driving costs and reducing availability:
- most small businesses had experienced cost increases (81%) and lower availability (60%) of goods that originate from outside the UK.
- many had been forced to absorb costs (40%) or increase prices (56%).
SMEs that had stopped importing or exporting to the EU within the past five years did so because of the volume of paperwork (56%), overall costs (49%) and supply chain or logistical issues (29%).

Researchers also warned that one of the most serious implications of reduced SME trade with the EU is the threat to the UK’s historically strong integration in Europe’s supply chains.

They concluded that many of the disadvantaged exporters were resource-constrained SMEs who exported single products or a limited range of products. They also argued that SME trade declined by:

ceasing to export to the EU;
continuing to export but with streamlined product lines, focusing on core products;
fewer new SME exporters entering the EU market:
- increasing concentration of exports in fewer products by larger exporters.

UK exporters felt the impact of the TCA first, but, for EU exporters to the UK, most the effects of trade barriers were delayed until 2024.

SME trade also shrank due to a 20-42% loss in the product varieties of goods exported to the EU. This occurred in the first fifteen months of the TCA over 2021 and the first quarter of 2022.

Fewer SMEs trade with the EU

Since Brexit, significantly fewer SMEs trade with the EU (see Table 5.8).

In 2024, only 30% of trading business traded solely with the EU, which was a big change from 2016 when nearly half traded exclusively with the EU.
Between 2018 and 2020:
- there was a 23,000 (15%) reduction in the 150,000 firms trading solely with the EU. Most of these were SMEs because there are only about 8,000 large (non-SME) companies in the UK.
- there was also a 20,000 (24%) rise in the 83,000 firms trading solely with the non-EU.
From 2021 to 2024:
- there was a further 16,000 drop in firms trading solely with the EU;
- the number trading with the EU and non-EU stayed virtually flat with a small 2,000 drop from 116,000;
- those trading solely with the non-EU increased by 10,000 from 122,000.

Table 5.8: UK importer and exporter populations (000’s)

Trade patterns		2018	2019	2020	2021	2022	2023	2024
HMRC	method	Old	—>		New	—>
1 EU only	Trading	150	149	127	125	124	116	109
2 Non-EU only	Trading	83	93	103	122	115	118	132
3 EU and Non-EU	Trading	73	74	69	116	118	116	114

4 Total	Trading	306	316	299	363	357	350	355
5 Total EU	Trading	223	223	196	241	242	232	223
6 Total Non-EU	Trading	156	168	172	238	232	234	246

7 EU only	Importing only	–	86	76	89	89	82	80
8 EU only	Exporting only	–	34	27	18	18	18	14
9 EU only	Importing and exporting	–	28	24	18	18	17	14

10 Non-EU	Importing only	–	62	70	104	96	98	113
11 Non-EU	Exporting only	–	21	21	14	14	14	13
12 Non-EU	Importing and exporting	–	11	12	5	5	6	6

13 EU and non-EU	Importing only	–	9	8	27	28	27	28
14 EU and non-EU	Exporting only	–	5	4	5	6	6	6
15 EU and non-EU	Importing and exporting	–	61	56	84	84	83	80


16 Total	Importing only	148	157	155	219	213	207	222
17 Total	Exporting only	60	60	53	37	37	38	33
18 Total	Importing and exporting	99	100	92	106	107	105	100
19 Total	Importers	247	257	246	325	319	313	322
20 Total	Exporters	158	160	144	144	144	143	133

Source:	HMRC