UK firms told ‘set up in EU to avoid trade disruption’

UK firms that export to the EU say they are being encouraged by the government to set up subsidiaries in the bloc to avoid disruption under new trade rules.

Firms have been hit by extra charges, taxes and paperwork, leading some to stop exporting to the EU altogether.

But several say they have been told that setting up hubs in Europe would minimise the disruption, even if it means moving investment out of the UK.

The Department for International Trade said it was “not government policy”.

“The Cabinet Office have issued clear guidance, available at www.gov.uk/transition, and we encourage all businesses to follow that guidance.”

The Cheshire Cheese Company said it had been advised by an official to set up in the EU after it was forced to stop its exports to the bloc due to trade rules that came in on 1 January.

‘Only solution’

The firm, which sold £180,000 of cheese to the EU last year, found that every £25-30 gift box of cheese it sends to consumers on the Continent now needs a veterinary-approved health certificate costing £180.

“I spoke to someone at the Department for Environment, Food and Rural Affairs for advice. They told me setting up a fulfilment centre in the EU where we could pack the boxes was my only solution,” co-founder Simon Spurrell told the BBC.

The firm, which had been optimistic about Brexit, is now looking at setting up a hub in France where it would “test the water”.

But it has also scrapped plans to build a new £1m warehouse in Macclesfield employing 20-30 people.

“Instead we might end up employing French workers and paying tax to the EU,” Mr Spurrell said.

“I left the EU as a UK citizen but now they are suggesting I rejoin my company to the EU, so what was Brexit for?”

‘Set up shop in Germany’

The issue, he said, was that the under the post-Brexit trade deal, a vet must approve every consignment of fresh food that his company ships to the EU.

It is a complex and costly process that has hit exporters of fresh meat and fish as well, and was partly why the government set up a £23m support fund for UK fishing companies.

UK retailers who export to the EU have also complained about being hit with unsustainable costs when customers in the bloc return goods bought online. This is due to new customs clearance charges incurred by shipping firms.

Some retailers have even warned they could burn clothes stuck at borders as it is cheaper than bringing them home.

However it is not just exporters that feel that setting up a subsidiary within the EU is the way forward as Richard Alvin, managing director of Capital Business Media – owners of Business Matters – has also looked to the EU to setup a ring fenced company to look after the companies database and content management division as there is still an ongoing concern of how GDPR and contacts with US providers will be managed. Commenting on the decision Alvin said: “During 2020, we saw a 200 percent increase in demand within our dedicated content marketing as a result of the rapid digital growth of businesses and a renewed vigour to move online.

“With so many concerns surrounding Brexit possibly threatening the day to day operation of this division within the UK, we knew in order to sustain this growth and continue offering our services, we needed to launch the division as a separate firm outside of the UK.

“It was a very easy decision considering the planned expansion of the company, and we knew that having a dedicated office based in Ireland would not only ensure our compliance, but also open up opportunities for our continued growth.”

As early as last October, trade consultants Blick Rothenberg warned that thousands of UK businesses might need to set up an EU presence in order to keep exporting to European markets.

However, experts say EU firms exporting to the UK – which currently enjoy a grace period over the imposition of some rules – will soon face the same issues.

Indeed, some EU exporters have already stopped deliveries to the UK because of new VAT related charges.

The DIT said it was not government policy to advise UK firms to set up EU hubs and that it was “ensuring all officials are properly conveying” the right information.

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