Complex rules and rising costs are pushing small firms out of EU markets, the Federation of Small Businesses (FSB) has warned.
Three in 10 SME traders expect to reduce or stop EU trade altogether if current rules don’t change, the report found, with 45% planning to maintain current trading levels and only 6% seeing an opportunity to grow trade with the EU under existing arrangements.
The study said compliance costs are eating into margins, with 34% of SMEs facing expenses of more than £5,000 a year.
Examples of paperwork “making EU trade harder to justify” include one small business reporting spending more than half of its time on trade admin alone, and the FSB said there’s regular disruption at the border such as goods being turned away or held up, resulting in unpredictable delivery times and damage to customer relationships.
Of those importing and exporting goods, 85% reported problems, including customs documentation (64%), physical inspections of goods (21%) and product marking and labelling rules (17%).
Elsewhere, VAT is “a major stumbling block”, with 75% of small firms that have engaged with EU VAT systems reporting “significant difficulties” and 41% saying they have not been able to find clear guidance.
FSB said “urgent action” is needed to make trading with the EU easier and more attractive for small businesses.
Its recommendations include:
- Mutual recognition of product standards between the EU and the UK.
- A single digital customs system so businesses only have to submit paperwork once, instead of repeating the same information over multiple forms
- A new UK-EU de minimis (low-value trade) deal to cut costs on small parcel shipments, so firms can sell into the EU without being hit by duties and fees on every order.
- Delivering the sanitary and phytosanitary (SPS) trade deal for food and plants by mid-2027 to remove border checks and paperwork, speeding up deliveries and reducing delays for exporters.
- Export grants of up to £2,000 to help small firms cover the upfront costs of entering new markets.
- Scrapping EU requirements for costly VAT middlemen so UK firms can sell into the EU without paying for local representatives to handle their tax.
FSB policy chair Tina McKenzie said:
“With growth at the top of the agenda, now is the time to get EU trade working for small firms.
“Small firms are not short of ambition but they’re being worn down by a system that feels stacked against them. Many want to grow into EU markets, but don’t have time to be swallowed by paperwork, creeping costs and delays that put hard-won customer relationships at risk.
“The EU should be a natural market for our small firms as it’s so close and accessible. When it works, it opens doors, drives growth and helps businesses thrive. For some firms, those EU orders are what keep things going when it’s slow at home.
“The demand is there and the opportunity is clear, so it’s a frustrating shame that many are currently questioning whether it’s even worth the effort at all.
“When sending a small order costs more than its worth, or a delay risks losing a customer, something has gone wrong.
“This isn’t complicated – a de minimis deal, an SPS agreement, simpler VAT rules and our other recommendations could unlock so much potential. They would take pressure off small firms and give them the breathing space they need to grow.”