Businesses must be ready for the changes coming in 2018

Businesses must be ready for the changes coming in 2018

With Brexit dominating the news agenda for businesses across the UK, it’s perhaps easy to become bogged down in news of divorce deals, tariffs and trading uncertainty. But for small and medium-sized businesses, 2018 is going to be a busy year, not least because a number of legal changes are due to come into force that require careful consideration.

Focus on data security

It’s an issue that has been front of mind for all businesses for some time. However, in May this year, the General Data Protection Regulation (GDPR) finally comes into force. This new piece of legislation affects businesses of all sizes and preparation is key.

A spate of recent high-profile data breaches across the corporate world and growing use of social media, have highlighted the need to tighten data security. The Data Protection Act 1998 is no longer fit for purpose and is not able to provide a legal framework to properly deal with hackers and other cyber criminals. Responding to this situation, the EU has formulated the new GDPR to reflect current methods of storing and handling data.

For some smaller businesses, the sheer weight of compliance information linked to the GDPR is daunting and in some instances, they may prefer to ignore the issue, in the misguided belief that it won’t affect them. Some may even be hoping for a last-minute reprieve and that Brexit will prevent it from being made into UK law anyway. The UK government has already confirmed that this is definitely not going to happen – the new legislation will be adapted into UK law regardless of Britain’s impending exit from the EU. .

The vast majority of businesses in the UK handle and store personal data – typically information about employees and/or customers. If data security is breached, they could face a significant fine of four per cent of global turnover or a one-off payment of €20 million, whichever is greater. While this penalty is intended to punish both large and small companies, the numbers are understandably worrying for smaller businesses. For those without the back-up of a large legal team for advice, the first port of call should be the website of the Information Commissioner’s Office, which contains large amounts of information about steps they should take in the run up to May, and the new reporting requirement stipulated by the GDPR.

The worst thing any small business owner can do is bury their head in the sand. The GDPR is coming and it is vital that businesses take the necessary steps now to ensure that their internal data handling and communication and storage processes are fully compliant.

Structural rethink

A significant legislative change is expected in 2018, which will affect the way all businesses, including SMEs, choose to structure their organisations.

Historically, UK businesses have been allowed to utilise ‘corporate directors’, or artificial entities, as directors of their companies. In 2016, the UK Government announced plans to overhaul the rules regarding company structures and confirmed that all company directors would have to be ‘natural persons’.

Choosing to use a corporate director has brought a number of benefits for businesses however. For example, appointing a corporate director makes it easier to navigate issues such as a personal liability. Also, if another member of the board chooses to leave the businesses or change job titles, appointing a corporate director could be a useful interim step and help to streamline administrative processes. Changes soon to be introduced will mean it is no longer possible for businesses to benefit in these ways.

With the incoming legislation due to take effect later this year, SMEs that have previously opted to use a corporate director as part of their structure in order to manage subsidiaries within larger organisations will need to rethink their approach. There are other options available but taking a step back and assessing how the changes will affect the business and what actions are required ahead of time, is essential.

Stem the flow of talent

Until the end of last year, there was considerable uncertainty around the future rights of EU citizens living and working in the UK. However, an announcement made by Prime Minister Theresa May last December has brought some much-needed clarity to the debate. It has been confirmed that there will be no change to the immigration status of EU workers in the UK after Brexit.

However, many employers in the healthcare and hospitality and leisure industries for example, rely heavily on EU workers and some are still concerned that it might become harder to retain talent after March 2019.

Whilst efforts are being made to ensure the UK remains as attractive as possible a destination to skilled workers based overseas, smaller businesses may still feel at a disadvantage. In particular, they lack the recruitment muscle of larger corporates and could find it harder to recruit talent going forward.

Any EU national who has been living and working in the UK for more than five years has the option to apply for permanent residency under current EU guidelines. Encouraging employees to go down this route is an important first step to securing talent and employers should be offering to help and guide their employees through this process. The application is a significant piece of administration, so any assistance will be useful, whether that be providing copies of payslips or P60s, or simply help to fill out forms.

The road ahead for 2018

The path to Brexit is inevitably going to be an uncertain and challenging one for SMEs. However, doing nothing is not an option, they should be preparing now for regulatory changes to protect the business and keep it on track for a profitable future.

Lisa Botterill is a partner at Shakespeare Martineau. 

Further reading on Brexit and 2018

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