Five years after the Trade and Cooperation Agreement (TCA) took effect, UK goods exports to the EU are still 18% below their 2019 level in real terms. That’s not a temporary blip — it’s the new structural reality your business is operating in right now.
If you run a small or medium-sized business that imports from or exports to Europe, Q4 2025 delivered a fresh set of challenges layered on top of the friction that’s been building since January 2021. Labour costs, tax changes, and weakening confidence combined with persistent customs overhead to make the final quarter of 2025 one of the toughest trading periods since the TCA launched.
But there’s also something genuinely new on the horizon — and if you’re in food, agriculture, or physical goods, it changes your planning calculus for 2026 and beyond.
This article tells you exactly what shifted in Q4 2025, what the live 2026 data shows, and what three specific actions you should take before mid-2027.
The Q4 2025 Numbers UK SMEs Need to Know
Before you can act, you need to understand the real scale of the problem — not the headline GDP figures, but the metrics that describe your actual trading environment.
The British Chambers of Commerce Quarterly Economic Survey for Q4 2025 — the UK’s largest independent survey of business sentiment, drawing on 4,644 respondents — showed that confidence among firms continued to weaken in the final quarter of the year. Turnover confidence remained stubbornly below 50%, with taxation cited as the single biggest concern. More firms expected to raise prices in 2026 than at any point since the survey began tracking that metric.
The FSB Small Business Index was even starker. Headline confidence fell from -24.4 points in Q3 2025 to -64.5 points in Q4 — a drop of 40.1 points. That placed Q4 2025 as the second-lowest reading ever recorded outside of the first COVID lockdown in early 2020. In wholesale and retail specifically, the confidence score hit -94.2 points. Accommodation and food services recorded -111.0. These aren’t soft indicators — they reflect the genuine structural pressure that SMEs are carrying into 2026.
On top of that, FSB research from early 2026 found that more than a third (35%) of small businesses expected to close or contract over the coming year. In wholesale and retail, that number climbed to 41%. In accommodation and food services, 45%.
The cumulative effect of five years of post-Brexit customs overhead — combined with Q4 2025 cost pressures — is genuinely reshaping the UK’s SME landscape.
What’s Still Costing You Money in 2026
The most persistent misconception among UK SMEs is that Brexit compliance was a one-time setup cost. It isn’t. It’s a recurring annual drag that compounds across every transaction.
Customs declarations remain mandatory on all UK-EU goods movements. HMRC’s estimate — published in 2019 and still the closest figure to official guidance — put the annual cost to UK businesses of completing these declarations at £7.5 billion. That estimate has never been formally updated. Given that declaration volumes and complexity have grown since 2021, the real figure today is almost certainly higher.
Rules of Origin (RoO) continue to catch businesses off guard, particularly those who source components from outside the UK and EU. Under the TCA, goods must meet product-specific origin requirements to qualify for the zero-tariff preference. If your supply chain includes materials from China, the US, or other third countries, you may be paying tariffs you didn’t budget for — or filing origin documentation that costs more in staff time than the tariff itself would.
Export Health Certificates (EHCs) currently cost up to £200 per consignment for food, animals, and plants moving to the EU. For a small food producer shipping 20 consignments a month to European customers, that’s £4,000 in paperwork costs alone — before you account for the time your team spends coordinating with vets or certifying authorities.
Safety and Security Declarations came into force for EU imports into the UK on 31 January 2025, adding a further layer of pre-arrival data requirements. DEFRA’s own estimate put the annual cost of SPS controls and safety and security declaration requirements under the Border Target Operating Model at £469 million to traders. That cost is dispersed across thousands of businesses, but it falls disproportionately on smaller ones.
A BCC survey found that customs procedures remain the top perceived barrier for SME exporters, cited by 45% of businesses, with export documentation cited by 39%. These aren’t theoretical concerns — they’re the day-to-day friction that causes EU buyers to switch to simpler local suppliers.
The Sectors Hit Hardest in Q4 2025
Not every UK SME feels Brexit friction equally. Four sectors in particular faced compounding pressure through Q4 2025, and understanding which category your business sits in matters for how you plan the rest of 2026.
Food and drink manufacturers had the roughest year. EU food export volumes in 2025 were 31% lower than 2019 levels, according to the Food and Drink Federation’s 2025 Trade Snapshot. Total food and drink exports reached a record value of £25.6 billion — but that value figure masks a volume collapse driven by SPS complexity. Exports of food and drink to Germany specifically fell 59.1% between 2021 and 2025 compared to the five-year period before Brexit. Business confidence among food manufacturers was at -31% in Q4 2025, recovering only partially from -60% in Q3.
Non-SPS food producers — manufacturers of chocolate, biscuits, breakfast cereals and similar processed goods — faced the steepest structural decline of all. These categories don’t benefit from the SPS Agreement announced in May 2025 (more on that below), and there’s no policy intervention currently planned that directly addresses their trade barriers. If your products fall here, 2026 planning needs to account for this being a long-term structural challenge, not a temporary one.
Retail and wholesale SMEs saw confidence at -94.2 in Q4 2025. Import costs, consumer demand weakness, and persistent customs processing delays at key ports combined to squeeze margins in a sector that was already absorbing the full National Insurance and National Living Wage increases from the October 2024 Budget.
Services exporters are in a different position. UK services exports to the EU were 19% above their 2019 level in real terms in 2024, and financial services exports grew 11% in 2025 — with EU financial services exports rising 14% in the first three quarters of the year. If your SME operates in professional services, technology, consulting, or financial services, the picture is meaningfully better than for goods exporters. But the BCC’s own research notes that SME services exporters still face significant barriers around licensing, mutual recognition, and cross-border service delivery that the TCA doesn’t resolve.
Why 39,000 SMEs Stopped Trading With the EU
One of the most concrete indicators of Brexit’s structural impact comes from a figure that rarely appears in mainstream coverage: between 2018 and 2024, an estimated 39,000 UK SMEs stopped trading solely with the EU. 23,000 exited the market between 2018 and 2020, during the uncertainty period. A further 16,000 stopped between 2021 and 2024, after the TCA took effect.
These weren’t firms that diversified away from Europe as part of a strategic pivot. Most were “discouraged exporters” — businesses that found the compliance cost and complexity of EU trade had made it structurally uneconomic relative to their margins. Academic research published in the journal Regional Studies identified this effect specifically, finding that regions outside London and Northern Ireland experienced broad disengagement from EU exporting, with productivity “scarring” effects expected to persist long-term.
If you’re still actively trading with the EU, you’re in a smaller group than you might assume — and the firms that have stayed are generally those that built the administrative capacity to absorb TCA compliance. The question for 2026 is whether your current compliance setup is genuinely cost-efficient, or whether you’re carrying hidden overhead that a customs broker audit could reduce.
The Dual Pressure: Brexit Costs Plus New UK Policy Changes
Q4 2025 didn’t just compound existing Brexit friction — it added new domestic cost pressures on top. Understanding this interaction matters because the two cost streams reinforce each other.
The October 2024 Budget increased employer National Insurance contributions from April 2025, raised the National Living Wage, and introduced changes that pushed labour as the dominant cost concern for UK SMEs. By Q4 2025, 73% of firms in the BCC survey cited labour costs as their biggest cost pressure. Tax concern, at 54% of respondents, was the second-highest on record.
For an SME already paying for customs brokers, EHC fees, and rules-of-origin documentation, absorbing a simultaneous increase in employment costs is a genuine solvency threat — not an inconvenience. This is why the FSB’s 35% closure/contraction figure for 2026 sits alongside sustained Brexit trade barriers rather than in spite of them.
The UK’s de minimis threshold — the £135 customs duty relief on low-value imports — is also now in the sights of policymakers. The Chancellor confirmed in 2026 that the £135 relief will be removed by March 2029 at the latest, following a government consultation on reforming the low-value import regime. For UK SMEs selling direct-to-consumer into EU markets via e-commerce, this matters because the EU simultaneously removed its own de minimis exemption for goods under €150 — a change that takes full effect from July 2026 with a temporary €3 customs duty per parcel heading. UK SME e-commerce exporters to the EU now face a structurally higher cost base for every low-value order they ship.
The SPS Agreement: What It Actually Means for Your Business
Here’s the development most SME-focused articles have underreported, or reported inaccurately: the UK-EU Sanitary and Phytosanitary Agreement announced at the Lancaster House Summit in May 2025 is not yet in force, not yet fully negotiated, and won’t affect your day-to-day operations until around mid-2027.
What it does do is change the long-term planning calculus for businesses in SPS-affected sectors. If you produce, handle, export or import animals, food, plants, or related products — including animal products, feed, pesticides, and biocides — the agreement will eventually remove most of the certification burden that has made EU trade uneconomic since 2021.
The key commercial change: Export Health Certificates, which cost up to £200 per consignment, will no longer be required for qualifying goods once the agreement is in force. For small food producers, this is transformational. The economics of selling to EU buyers — which currently don’t work at low volumes — could be restored.
The government published its first substantive business guidance in March 2026, and Defra published new practical preparation guidance on 1 June 2026. The recommended steps for SMEs right now are to engage with your relevant trade body or industry association (they’re receiving sector-specific guidance ahead of public publication), engage with your supply chain to understand what changes affect your suppliers, and sign up for Defra email alerts to receive updates on the negotiation timeline and compliance requirements.
There are two important caveats. First, the agreement requires the UK to dynamically align with EU SPS legislation on an ongoing basis. If your production processes have diverged from EU food safety standards since 2021, you’ll face an adaptation cost when the agreement takes effect. The government is commissioning research on SME readiness and behavioural barriers specifically because compliance readiness among smaller businesses is a known risk to the deal’s effectiveness. Second, the agreement doesn’t help non-SPS goods at all. Chocolate, biscuits, cereals, and most processed food categories see no benefit. Nor does it remove customs declarations or rules-of-origin requirements — those stay in place for all goods.
If you’re in a qualifying SPS category, start your preparation now. The businesses that benefit most from the mid-2027 opening will be those that spent 2026 mapping their compliance gaps, not those who start reading the guidance in early 2027.
What the Q1 2026 Trade Data Shows
The most recent ONS trade data — released in April 2026 covering Q1 2026 figures — gives a more nuanced picture than either pessimists or optimists tend to report.
Goods exports to the EU increased by £2.8 billion (6.2%) in Q1 2026, driven primarily by a £1.4 billion rise in machinery and transport equipment exports (notably office machinery to the Netherlands) and a £0.9 billion increase in fuel exports. This is real and positive — but it’s being driven by a small number of large commodity categories, not by broad-based SME export recovery. The overall pattern for Q1 2026 is one of import demand growing faster than export capacity, with customs overhead remaining constant.
The ICAEW Business Confidence Monitor for Q1 2026 found that confidence was tracking toward positive territory through early March — before the outbreak of the Iran war in late February sharply reversed the trend, dragging the Q1 reading to -1.1. While this is an improvement from -11.1 in Q4 2025, it marks the fifth consecutive quarter of negative sentiment — the longest run since Q2 2018 to Q3 2019.
The honest summary of where UK SME trade stands as of mid-2026: the structural Brexit drag is still present and measurable. The SPS agreement and a UK-EU reset offer a better medium-term outlook for affected sectors. But the businesses that will be positioned to capture those benefits are the ones actively building compliance capability today, not waiting for the policy environment to simplify itself.
Three Actions UK SMEs Should Take Before End of 2026
Given everything above, here’s what the data points toward as concrete priorities for the rest of this year.
First: commission a customs compliance audit.
If you’re using a customs broker and haven’t reviewed your declaration history since 2021, you’re almost certainly carrying inefficiencies. HMRC’s Trade Remedies Extranet (TRE) provides free access to your complete customs declaration history. Use it — or ask your broker to use it — to check commodity code consistency, verify that origin claims are properly documented, and confirm that you’re claiming all applicable duty reliefs. Overpaying on import duties across 12 months of operations is a material cost for most SMEs.
Second: if you’re in an SPS-affected sector, start your compliance gap analysis now.
The SPS agreement takes effect around mid-2027. The businesses that will be able to scale EU sales from day one are those that have already mapped where their production processes have diverged from EU standards since 2021, and have costed what realignment requires. Contact your industry trade association (the FDF, NFU, or sector-equivalent) — many are already working with government on sector-specific guidance, and the detail available through trade associations is significantly ahead of what’s been published publicly.
Third: reassess your EU e-commerce strategy before July 2026.
The EU’s removal of the de minimis exemption — with a temporary €3 duty per parcel heading from July 2026 — directly affects UK SMEs selling low-value goods direct to EU consumers. If you’re using IOSS (Import One-Stop Shop) registration to collect EU VAT at checkout and ensure clean customs clearance, review whether the additional July 2026 duty structure changes your pricing or margin assumptions. If you’re not using IOSS and you sell goods valued at €150 or less into the EU, the risk of your customers receiving unexpected charges at delivery — and the resulting returns and loss of repeat business — is now higher than it’s ever been.
The Realistic Outlook for UK SMEs Trading With Europe
The post-Brexit trade landscape in mid-2026 isn’t what anyone predicted in 2016. It’s not catastrophic collapse, but it’s not adaptation and recovery either. It’s a structural reset that has permanently raised the cost of EU trade for smaller businesses while leaving larger firms broadly unaffected — and in some cases advantaged, because they can absorb compliance costs that drove their smaller competitors out of the market.
Goods exports to the EU remain 18% below pre-Brexit levels in real terms. Forty thousand SMEs have exited EU trade since 2018. Food export volumes to Europe are still nearly a third lower than in 2019. These are structural features of the current trading environment, not transitional ones.
At the same time, the SPS agreement — if it completes negotiations and enters force around mid-2027 as planned — will meaningfully reduce the cost of EU trade for qualifying food, drink, agricultural, and plant sectors. The UK-US pharmaceutical deal announced in December 2025 and expanding FTA pipeline offer some diversification. And services exporters are demonstrably performing better than goods exporters, with UK services exports to the EU up 19% above 2019 levels.
The right response is neither to wait for the political environment to restore frictionless trade (it won’t, at least not fully) nor to abandon the EU market. It’s to build the operational capability — in customs compliance, rules of origin documentation, and SPS readiness — that turns the current cost structure into a defensible competitive position. The SMEs that have stayed in the EU market since 2021 are there because they built that capacity. The question is whether yours has kept pace.
Your Next Step
Start with your customs declaration history. Pull the last 12 months from TRE or ask your broker for a compliance review. You’ll either find inefficiencies worth addressing — or confirm that your current setup is as tight as it should be. Either way, you’ll be making decisions based on your actual cost structure rather than an assumed one.
If you’re in food, agriculture, or anything SPS-adjacent: register with Defra for email alerts and contact your trade association this month. The guidance window before mid-2027 is shorter than it looks.
Brexit didn’t end. It compounded. The SMEs that treat 2026 as a year of active compliance preparation rather than passive endurance are the ones that will be positioned to grow when the SPS agreement opens the EU market back up.
