A UK-based online fashion business has had to invest an unexpected four-figure sum and limit itself to domestic trading so it can open its virtual doors for the first time, because of new trading arrangements within the Brexit Deal.
SlowCo, an online marketplace that connects sustainable fashion brands in the UK and EU with customers, began trading on 12 January of this year after 18-months of preparation, which included plans to sell to customers across 27 EU countries and the UK .
Yet with less than a month to go until their launch, a Brexit Deal was agreed that threw up a triple whammy of VAT, legal and technological hurdles to overcome if SlowCo could begin facilitating sales to EU consumers – prompting the business to temporarily limit its sales to UK-based customers for now.
Faris Hamadeh, who is based in Sevenoaks, Kent and is Co-Founder of SlowCo, said: “The late arrival and lack of clarity around key areas of the Brexit Deal have required significant and almost overnight changes to SlowCo’s operating and legal model, and the additional costs and workload for a newly launched business like ours have been difficult to swallow.
“We had to quickly find a workable solution in a matter of days, just to ensure we could be viable as an online selling platform beyond UK borders in the long-term. Amongst other things, this meant a full redrafting of the contracts with each of the brands that we work with.
“We are a new business and first impressions count, so for now the last thing we want is for our EU-based customers to experience any potential delivery delays because of red tape, and more importantly, receiving any unexpected rise in costs – we just aren’t in a position to risk alienating our customers at a time when we are trying to build up a following and consolidate our business.
“Brexit has also had an impact on the technology side of our business, as we are having to do a lot of work on ensuring our automated systems are processing orders correctly according to our new setup. The only other alternative would have been to process orders manually, which just isn’t viable for some of our partner brands.
“For businesses like ours to thrive, the less friction there is between the EU and the UK, the better.
“Consumers on both sides of the channel have got used to the freedom of frictionless cross-border online shopping and we, along with countless other small businesses, would welcome any developments in that direction.”
Another major hurdle that SlowCo has had to overcome is the complexities of changes to VAT, and has enlisted VAT specialist Kevin Hall, from leading law firm Wright Hassall, to support it in understanding the consequences of the Brexit deal for the brands that use their online platform.
Hall said: “The complex nature of the VAT changes has left many companies intimidated, frustrated and unable to carry on trading in certain markets because both they and their customers don’t understand the changes and don’t want to unintentionally break any regulations.
“Many of the brands using SlowCo would typically be sending products between GB and EU, where there is now a border, which now potentially requires two registrations with the EU – one for VAT and one for Customs clearance.
“Under certain operating models, that means if a UK-based business, such as a brand on SlowCo’s online marketplace, sold one item to a customer in each of the 27 EU countries, they would potentially need to register for VAT 27 times.
“There is also a new threshold below which UK online marketplaces become responsible for the VAT on sales which they weren’t before the Brexit Deal – an issue which we have now resolved for SlowCo. This is a measure by the government to stop tax evasion, which is a worthwhile exercise, but it has the unintended effect of creating more struggles for legitimate businesses.
“The problem is the sheer number of administrative hurdles and this will understandably lead many British businesses to ask themselves, is it worth it?
“How long is it going to take to sort VAT registration? Is it worthwhile if they are only selling to one customer in that country? VAT rates are different in each country, so how do they deal with the IT to account for that? Some of these changes also require amendments to the legal text in contracts, so how quickly can they source a lawyer to draft this?
“The changes to VAT as a result of the Brexit Deal are causing game-changing consequences for some companies – particularly small, newly-launched companies due to the workload involved in conforming to new rules which is affecting custom from overseas markets – this is why it’s important for companies to seek professional advice early to boost their chances of retaining overseas clients.”