Brexit: An uncertain future for ecommerce in the UK

Brexit has been headlining newspages for almost half a decade. 2021 will mark the first full year that UK businesses will operate outside of the European market. The impacts that this change has had on e-commerce are still being navigated today. Thousands of UK ecommerce stores lost the right to their .eu domains this year, as part of the regulatory changes enforced post Brexit. These domains can no longer be accessed by companies hosting in the UK. Sweeping changes like this one have caused significant insecurity in UK businesses, only further exacerbated by a pandemic; the effects of COVID-19 acting as the hammer to Brexit’s anvil.

Navigating a completely new trade environment while also dealing with a once in a century pandemic is anything but easy. What can already be established is that the effects of Brexit are far reaching and incredibly consequential for businesses operating across the pond from EU-shores. The free movement of people and goods is one of the most discussed topics, and certainly important, but other factors come into play. The free movement of data, data security, data privacy, and hosting location are all additional features that will challenge UK businesses who want to operate outside of their own borders.

Given all of this it’s important to understand what you need to consider as an ecommerce business: What does Brexit mean for UK ecommerce businesses and how can you best tackle the new risks and opportunities that this new economy brings with it.

Brexit: Data privacy and Safety

Data transfers are a basic building block of the digital economy. E-commerce, or cross-border financial services could not function without it. By leaving the EU the UK gained the right to determine its own international trade policy, including the trade and exchange of data. While free trade agreement has been reached concerning the flow of goods and materials no consensus has yet been reached for data standards or transfers. At this point no sustainable solution has been found for integrating the UK adequately with the EU GDPR. A study by the European Parliamentary Research service has found that this policy failure has cost UK firms around GB£1-1.6 billion, with no long term end in sight to the missing policy mechanisms needed.

A short term bridging mechanism has been applied, but this is due to expire on June 30th 2021. Businesses are temporarily operating under a semblance of calm, but soon even this small period of stability will end. While a more long term solution is coming, the risks remain. The EU commission can always decide to make use of its suspension and termination rights if the UK does not adequately comply with the GDPR, and send everything up in smoke.

This puts UK based ecommerce stores in an awkward position, as by hosting data of EU citizens in the UK they are at the mercy of the European Commission maintaining adequacy between the EU GDPR, and the UK DPA . While adequacy between the DPA and GDPR is currently supported by the European Commission, debates around data collection and privacy are putting the decision at risk. The differences between EU and the UK domestic policy may therefore be a long term agent of chaos to the safety of any adequacy decision. As such the ability for UK digital business to operate in the EU, in a safe economic environment, is not a given.

Shipping and Taxes

The difficulties of shipping and cross border transport, as well as tax regimes, are also closely tied with the ecommerce market. Pre-Brexit selling goods to the EU was a comparably easy process. Goods could be sent from UK warehouses to a customer in the Netherlands or France, and buyers would pay a UK VAT, with a VAT from the destination country being applied above a specified price threshold. No custom checks or tariffs were applicable. Buyers could expect quick delivery times and generally enjoy a comparable experience to ordering from within the country.

This has changed drastically. Ecommerce businesses face significant barriers to transporting their products in a timely manner. While a free trade agreement has been struck there are many exceptions. For example goods with more than 40% of components manufactured outside the UK or EU (basically all electronics for example) can be eligible for tariffs. These exceptions also extend to duties applied to specific products like leather, which can be different for each EU member state. Logistically it’s an absolute nightmare, as even avoiding many of the additional costs means countless hours of research and constant attention to shipping and supply chain practices, a level of resource commitment many businesses simply do not have the budget for. This is all for getting products to the EU – getting them back such as in cases where deliveries are not fulfilled, or products are returned, add another layer of complexity altogether.

The complications, costs, and delays that UK ecommerce experiences means competition in the larger EU market is fierce. Custom border delays, a poor customer experience, financial risk due to additional tariffs or unexpected fines and rising shipping costs don’t set up UK sellers for success in EU markets. The data shows that it is not going well, with research showing 30% of orders are being returned, in many cases because consumers ended up having to pay additional hidden costs. The solution for many businesses? Moving.

Moving overseas

For many businesses the logical step to take to avoid the Brexit related headaches has been to establish sister companies overseas, within the EU. Surprisingly, rather than attempt to stem this flow, government trade advisors from the UK Department for International Trade (DIT) are reportedly encouraging businesses to avoid extra charges and remain competitive within the EU. It’s good advice.

By registering a subsidiary within the single market businesses can largely operate in pre-Brexit conditions. This means significant investment, as operations need to be moved, additional hosting and domains need to be secured within the EU, and ideally warehousing needs to be acquired.

Brexit: What now?

Already facing an uncertain environment for hosting and data storage, an extremely complicated and fluid tax and tariff system, shipping headaches and pressure to move at home it’s no surprise many ecommerce businesses are considering moving or establishing a second home within the EU.

The Netherlands is a selection of choice for many businesses due to it’s it’s geographic proximity to the UK, as well as healthy business environment and digital infrastructure. Companies both large and small are establishing hubs, sometimes clearly stating that this move is a direct consequence of the post Brexit environment. This leaves us with an interesting situation when it comes to hosting, as for UK businesses a new home requires a new host.

With our office in Amsterdam, and data centres in the EU, Hypernode is ready to help make the move across the pond a bit easier. We offer much more than just a Dutch hosting location: If you’re curious, take a look at our product page, take advantage of our free trial, or contact us directly.