Will Brexit impact the UK’s shared services industry?

There is a lot of uncertainty in the market at the moment with regards to the fallout from the UK’s decision to leave the European Union. Opinions range from “not much change” to “the UK will be dead as a potential SSC location”. While there is still not much certainty, data doesn’t lie. SSON Analytics has crunched internal data on UK-based shared services centres (SSCs) and compared it to externally sourced data to give you some additional insights into the potential impact of the UK’s Brexit on shared services. Read the visual report.

Last week, SSON columnist Fatmir Hyseni wrote about the "big push" towards automation of services as a result of Brexit. One of the significant side effects, he says, would be the enormous additional demand for IT services to tackle changing regulations around data protection and security issues. With the UK the world's second-largest outsourcer, its economy is dependent on the kind of flexible sourcing practices that outsourcing provides.

British companies will, of course, still want to avail themselves of the outsourcing option especially if, as is foreseen, the traditional flood of skilled IT professionals to the UK from Europe slows down. Britain's loss, of course, may well be Europe’s gain.

SSON Analytics recently evaluated the potential impact of Brexit on the UK’s 328 shared services centres. Only 9% of these SSCs have an EU-based headquarter whose corporate taxes are currently paid to the UK. Post Brexit, these entities can choose to pay tax to the UK or their EU government. Overall, the impact of Brexit on UK-based shared services, in terms of tax revenue, may not be as significant as thought given double taxation treaties.

One of the big concerns, of course, is availability of talent. The UK has for many years attracted a significant brain drain from across Europe, of individuals seeking challenging and rewarding positions. Brexit may well make the transfer of this workforce more difficult. For now, the majority of individuals working within shared services are indeed from the UK (91%) although in the greater London region, 1 out of 8 shared services professionals is from Europe.

One of the fallouts of Brexit, however, may be changes to terms and conditions of employment. Based on our evaluation, corporations may stand to benefit at the cost of employees once the UK is no longer beholden to EU directives. For example, currently, the TUPE [Transfer of Undertaking Regulations] acts as a UK implementation of the EU Business Transfers Directives and preserves employees’ terms and conditions when a business is transferred to a new employer. After Brexit this protection no longer applies.

From a macro perspective, 44% of UK exports currently go to other EU countries, and 53% of UK imports come other EU countries. The top 10 industries leading both import and exports represents a third of the most popular shared services industries across the UK. From a goods trading perspectives, there should be significant fallout post Brexit, which shared services will feel first-hand.

The big challenge for our members is how the shared services landscape might shift once the UK opts out of the European Union. The UK holds the leading position across Europe, as the most popular location for shared services, with Poland a close second.

There has been very little clarity, and no clear changes of strategy, for UK-based shared services to date. The biggest concern may well be a staffing issue if that arises. With many shared services operating as a pure provider and not profit center, the concern around potential impacts of tax are probably moot. Nevertheless, we are all keeping an anxious eye on developments.

Read the full analytics report: BREXIT: What are the Potential Impacts on the EU Shared Services Landscape?