UK industry braces for no-deal Brexit

The Brexit deadline is approaching fast, and yet it's still unclear how significantly the UK's split from the European Union will affect the games industry.

As the pressure mounts ahead of next week's Parliamentary vote, a no-deal Brexit is looking increasingly likely, meaning the UK would break away on March 29, 2019 with no established rules or guidance as to what its relationships with EU nations (and businesses based there) will be.

Trade body UKIE is "still hopeful there will be a deal", but agrees that all UK-based games firms should be doing what they can to plan contingencies in case this falls through.

"There are a number of uncertainties, the majority of which are picked up in the numerous technical papers the government has launched in preparation for a no-deal," CEO Dr Jo Twist tells GamesIndustry.biz. "Issues that have come up concern VAT on digital services, for example, where it is possible some companies have not thought whether or not they may be affected.

"There will no doubt be more currency fluctuations in the short term, and ongoing issues such as the legal basis upon which data can flow between borders affects all sectors. With this continued uncertainty about a deal or no deal, of course, we expect recruitment decisions to be potentially impacted too, which could be damaging."

While the UK government has indeed published a series of papers to help inform both businesses and citizens about the implications of a no-deal Brexit, TIGA CEO Dr Richard Wilson notes that "there is no sector-specific notice for the UK gaming industry".

Many of the companies we spoke to expressed frustration over this -- especially since the industry contributes almost £3 billion to the UK economy.

"While we can prepare ourselves for a possible No-Deal Brexit as best we can, the uncertainty coming from the leadership in government is not making it easy for businesses such as ours to plan ahead," says Green Man Gaming founder and CEO Paul Sulyok.

"Businesses such as ours need clarity, information and guidance from the government when it comes to the country's future plans post our exit from the EU, to help us continue to thrive. It is simply mind-boggling that this hasn't happened yet, and we're only a matter of months away. I strongly feel that the purpose of government is to reduce uncertainty for its citizens and would suggest it is time for parliamentarians to step up for the general good of the country.

"In the meantime, we're working to mitigate as many risks as possible internally from supporting our EU staff to ensuring our 2019 plans take any events into account."

Sold Out CEO Garry Williams adds: "It's hard to prepare for chaos -- more so with no clues from the UK government. Hard to plan anything when no one tells you the rules."

As is often discussed when debating the consequences of Brexit, retaining and recruiting talent remains a chief concern among games companies. Developers, for example, still need to bring in fresh people for their projects, and the uncertainty over what rights those hires will still have by the end of March has made the process more difficult.

"Our industry is culturally global; with the products we create, the people behind them and the players we bring together," says Creative Assembly studio director Tim Heaton. "A no-deal Brexit is a barrier to the UK's role in this, and unfortunately there is no one clear action that will protect studios from its impact.

"It's important that we have a unified message to the global games community that the UK remains a welcoming and innovative hub of development. We need to invest in resources to support relocating global talent and retaining the EU talent we have, this includes covering visa costs and help navigating the complex system.

"Additionally, we need to look at the industry's approach to career development and integration with education, upskilling talent early to meet the needs of specialist and emerging roles."

TIGA reports that EU workers make up 15% of the UK games industry, with a further 5% composed of people from other non-EU countries. This is significantly higher than the nationwide stats, which show EU workers form 6.8% of the UK workforce, demonstrating how significant the ability to hire from Europe is to the games industry.

"The UK video games industry is a world leader and depends on the ability to recruit the best and brightest talent," says Wilson. "We want the Government to ensure that the industry's ability to recruit skilled workers is not diminished following Brexit.

"An additional concern is access to finance. As we leave the EU, the UK needs to retain or replace funding streams that benefit the video games industry."

Wilson notes that the government is already attempting to seek associate status with Horizon Europe, the EU's largest ever research and innovation funding programme with a budget of €97.9 billion.

"We want to see the UK and Europe lead the way on artificial intelligence, virtual reality and augmented reality, and it is funding programmes such as Horizon Europe that help to support vital innovation," he says.

Williams observes that changes in taxes and how those are applied could also cause problems for UK games firms, particularly publishers selling to users in EU nations -- and even further afield.

"Under current USA dealings as an EU country, we fill in a W18-BENI form and we are covered on USA tax for Steam," he says. "If I read that agreement correctly, should we exit Europe the UK-based company can lose 30% that we may not be able to recover from that Steam deal."

He continues: "The tax and movement elements are the issues that 'could' immediately affect my business. We sat our teams down to look at specific issues to at least begin to look at alternatives. My team had not considered the W-18 tax issues that could come from digital tax withholding.

"As a company that imports then adds or enhances and ships again to Europe, the gaps between paying and recouping are inevitably forced further apart. Cash flow issues can easily be created. Meanwhile, most people take the view 'it will all work out' -- well it won't, and it really is not going to be alright."

Some companies are a little more optimistic, predicting that the digital nature of games -- especially those without a retail release -- shouldn't be as badly impacted by Brexit.

"There's very little impediment to the free movement of data across the globe," says Rebellion CEO Jason Kingsley. "There is some but there's not much. So unlike, for example, the transport industry or the manufacturing industry, the raw materials are the staff and the brains and the talent. That's the biggest challenge, I suppose - making sure we can continue to expand and find new staff who are of the quality that we need. But we don't yet know what the rules will be on hiring people who are not from the UK. With our staff who were not born in this country, we've tried to manage their concerns as best we can and help them out."

He continued: "Retail, as another example -- retail's got its own problems anyway across the board because of online shopping -- but they've got issues because they bring stuff in, and there's all sorts of tariffs. We don't really have any of that so I think we're in a quite lucky position in the games industry."

In the face of the unknown, it can be difficult to prepare for the eventuality of a no-deal Brexit. Many of the firms we reached out to opted not to comment until the results of the MPs vote next week -- we'll have more from them once the vote has been decided.

In the meantime, some were keen to offer advice to UK games businesses. UKIE's Twist urges leaders to "cover all your bases, don't leave things to chance or to the last minute, and read the advice available."

Wilson adds: "A games business can take some steps to prepare for a no-deal Brexit. For example, it would be prudent to build up stocks of relevant hardware to mitigate the impact of possible transport disruption. It would also be wise to build up cash reserves to boost business resilience in the event of an economic downturn.

"A games business should also review its position in respect of data, trading and access to EU employees. The business should then devise strategies to limit risks and ensure that it can keep operating as smoothly and effectively as possible."

Kingsley agrees, especially on the point of hardware, adding that people ordering backup discs manufactured on the Continent should "make sure you've got enough, and if you haven't got enough make sure you've got a back-up plan."

He concludes: "There are always unknowns. So when you plan for business -- what I always say is I try to hope for the upside, but also work out what could go wrong and how it could go wrong and try to mitigate those things.

"It's likely there are things we can't plan for, so you just need contingencies even for stuff you don't know about, and that's how we're approaching Brexit. I'm sure those kinds of things will come up - I don't know what they will be, but that's the whole point of having contingencies."

Members of parliament will vote on whether or not to adopt Prime Minister Theresa May's current Brexit deal on Tuesday, January 15.