How SMEs can survive the Scottish referendum

The Scottish independence referendum is fast approaching, and in the final days before Scots head to the polls, the outcome is sure to remain uncertain for small businesses with an interest in the country.

English and Scottish businesses could suddenly find themselves international exporters on September 18th, and though independence poses a number of risks, there are still plenty of ways to protect yourself if you’re exposed.

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Here, David Nicholls, alliance manager at UKForex, answers some of the biggest questions for SMEs with trade in Scotland.

The UK government is insisting that Scotland will not be able to use the pound in the case of independence. How can SMEs protect themselves against this uncertainty?

If you’re an English business with customers north of Hadrian’s Wall, it’s wise to get ahead of the game and open a bank account in Scotland to store some of your revenues. If recent polls are right, there’s every chance a Yes could triumph and leave Scotland with a separate currency. If this happens and you’ve planned ahead, you will have created a natural hedge with cash balances on both sides of the border.

I still don’t know what currency Scotland will use. How can I protect my business?

The pound has been at its most volatile for some time, falling to a 10-month low on the news of increased poll support for the Yes vote. The market has been significantly rattled as a result, which has given us a preview of the kind of issues the pound will face if September 18th results in a Yes.

In the event of a Yes vote, the best course of action is to get in touch with a currency specialist. You’ll need to discuss your options for dealing with the risk of ambiguity over the Scottish currency.

For example, if Scotland ends up adopting a new currency and you need to re-price your products as a result, you’ll need to hedge the risk of receiving payments in this currency by paying close attention to currency fluctuations. Forward contracts may also be a good tool for countering the risk.

Would independence result in a loss of custom?

Importers, as well as exporters, will be exposed to greater cost and uncertainty. This could lead to importers switching suppliers to someone on their side of the border to reduce uncertainty.

Speak to your cross-border customers now to make sure they’ll still be happy to work with you in the event of a Yes vote. Take steps to improve the trust between your customers and your business, and consider appointing a local spokesperson to ease communication on the ground.

Should I expect changes in levies on imports and exports?

With such doubt around how taxes will be structured for trade with an independent Scotland, it’s wise to budget now for increased transaction costs.

Will an independent Scotland be in the EU, and what could the fallout be for my business?

If Scotland does go independent, it is likely that it will attempt to enter the EU. Subsidies, such as single farm payments, could be at risk for Scottish farmers during this process.

Scottish farmers should seek clarification as to where they stand and what subsidies they can still expect. Where possible, it’s a good idea to budget conservatively in advance, as Scottish accession to the EU is not immediately guaranteed.

Meanwhile, English importers need to check that any loss of subsidies will not lead to higher prices on Scottish goods. Again, create a robust budget to keep you afloat no matter the outcome on September 18th.

What about VAT?

For VAT, there is a best and a worst outcome. At best, businesses on both sides of the border will have to go through more complex VAT reclaim processes than pre-independence. This will undoubtedly have short-term cashflow implications for small businesses. At worst, a prolonged accession to the EU could mean UK and Scottish SMEs cannot reclaim VAT on the cost of goods and services, which would have larger cost implications for them.

If you regularly reclaim VAT on expenses incurred in Scotland, make sure you speak to an accountant to clarify your options in the event of independence.

To survive Scottish independence intact, SMEs need to be aware of the risks. Plan, budget and keep both short and long term goals, and your business will stay afloat in such tentative times.

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