Key considerations of Brexit on the technology & media sector

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The vote to leave the European Union will have various implications for the UK’s Technology & Media (T&M) industry, in particular employment of non-UK workers, access to research grants, and whether our leaving the EU impacts the application of Data Protection laws. Brexit will certainly create challenges, but with change comes opportunity for this highly innovative sector.

The two or more years it will take for the UK to leave the EU is a lifetime in the world of T&M. While firms need to monitor and respond to the potential impact of Brexit, for instance making appropriate changes to group structures to facilitate hiring and to maximise incentives, it is not yet likely to be a key business driver for many in the sector. 

Positive impact

With its thriving start-up community, London is widely renowned as the digital capital of Europe, and the UK as a whole is considered a key player in this arena. Technology businesses in particular are born global in many respects – from their business plan to customer base – and are likely to feel a significant impact as the UK changes its relationship with the EU and seeks new trade deals elsewhere in the world. This also means that UK-founded tech is one of the best placed sectors to take advantage of the opportunities.

Highly-skilled talent pool

Access to talent for UK businesses will be high on the agenda given that the free movement of labour is a vital benefit of being part of the EU for this sector. The UK T&M sector, and all of the innovation that surrounds it, needs highly skilled people to allow it to flourish. Leaving the EU has created uncertainty over what sorts of new immigration controls may be introduced into the UK; however, it may make hiring from non-EU countries relatively easier. We know that there are good sources of digitally-skilled labour in a number of the commonwealth member states. Alternatively, it may be possible to legislate for specific talent based fast tracking for all countries’ citizens. 

The UK T&M sector, and all of the innovation that surrounds it, needs highly skilled people to allow it to flourish.

Access to funding

There are concerns about the loss of access to EU funding programmes. For life science firms, there is anxiety over their possible exclusion of programmes such as Horizon 2020, its largest ever research and innovation programme, which has nearly £70 billion available. 

Venture capital helps many start-ups get off the ground, and there are concerns as to whether the Luxembourg-based European Investment Fund, the largest investor in UK venture capital firms, would stop investing in the UK following the formal Brexit. If the UK economy continues to thrive (as early indicators suggest it will), why wouldn’t it invest here to maximise the returns? 

Similarly, uncertainty surrounds the EU’s programme, Creative Europe, which supports the cultural, creative and audio-visual sectors. For example, its ‘Culture programme’, which ran from 2007-2013, had a budget of €400m to support projects to promote cultural diversity and heritage. Following the EU referendum result there are no immediate material changes to the current arrangements for those who have successfully applied, are currently being assessed, or are planning to apply for Creative Europe funding in 2016 and 2017.

It remains to be seen how the UK’s trading relationship with the EU will develop and whether we can accept the price of access to the single market. If it gives rise to a significant reduction in the flow of funds into the EU from the UK exchequer, there could clearly be significant discretionary funding available to the UK’s tech, media, life sciences and creative sectors. The UK Government has already made positive comments regarding maintaining the funding for this and other sectors reliant on EU funding by redirecting budget previously used to pay EU membership fees.

Tax rules and tax breaks

Incentives offering generous tax breaks such as the Creative Sector Reliefs, R&D tax credits and Patent Box have all been modeled to be EU compatible and are bound by rules on State Aid. As a member of the EU, the UK cannot improve these government incentives and subsidies further without EU approval. Leaving will therefore remove these restrictions and open the door for the UK Government to build more generous incentives in order to improve the UK’s competitiveness.

Other tax incentives that can be improved if State Aid rules are no longer relevant include the Enterprise Investment Scheme and Seed Enterprise Investment Scheme, both popular with angel investors. A balance will need to be struck between the funding needs of the UK Government, net savings from the EU and how competitive we can be in the global economy.

Uncertainty over handling data

It will be interesting to see how the future of data protection for businesses in the UK will develop following Brexit, particularly as the new EU General Data Protection Regulation (GDPR) is set to come into force. Until such time as the UK formally leaves the EU, the GDPR will be directly applicable in the UK, but will cease to apply following Brexit unless the Government provides an alternative. If the UK does not formally adopt the GDPR it could mean UK businesses may operate in a less burdensome regulatory environment. Companies will have until May 2018 to comply with the GDPR or potentially face fines of up to 4% of annual turnover, or €20 million.

EU headquarters

Companies will have until May 2018 to comply with the GDPR or potentially face fines of up to 4% of annual turnover, or €20 million.



 

EU legislative framework

In an attempt to create a ‘Single Digital Market’, the EU has created legislation covering fixed and wireless telecoms, internet, broadcasting, and transmission services. The relationship between the UK and the EU following Brexit will determine the extent of the difficulties in complying with some of the requirements of the necessary UK legislation without the infrastructure and internal agreements of the EU.