Britain's multi-billion pound digital economy is "at risk of isolation" as a result of Brexit unless the Government secures a transition agreement avoiding interruptions to the flow of data, businesses have warned.
The warning from the CBI came as ministers acknowledged that any disruption to cross-border data flows as a result of the UK's planned withdrawal from the EU could be "costly" for both Britain and Europe.
In the latest of a series of papers published ahead of the third round of formal Brexit talks in Brussels next week, the Government will set out proposals to ensure that personal data can continue to be safely and effectively exchanged without imposing extra financial burdens on companies and consumers.
But trade body TechUK said it was unclear whether the Government's proposals would provide the legal framework needed for data transfers and warned that securing the right arrangement could take 18 months or more.
The Government's position paper being published on Thursday will say the UK's £119 billion digital economy is reliant on the free flow of data, adding: "Any disruption to these cross-border data flows could be costly to both Britain and the EU."
The document will set out plans for a "unique approach" to ensure continued close co-operation between public authorities, law enforcement agencies and data protection regulators in the UK and EU.
Any solution must allow data to be shared in a "safe and properly regulated" way while protecting privacy and offering stability and confidence to businesses, authorities and individuals, it will say.
Digital minister Matt Hancock said: "In the modern world, data flows increasingly underpin trade, business and all relationships. We want the secure flow of data to be unhindered in the future as we leave the EU.
"So a strong future data relationship between the UK and EU, based on aligned data protection rules, is in our mutual interest.
"Our goal is to combine strong privacy rules with a relationship that allows flexibility, to give consumers and businesses certainty in their use of data."
The CBI welcomed the government paper as a "step forward", but warned that failure to secure a transition deal could harm a sector which could soon be worth £240 billion.
The organisation's director of innovation Tom Thackray said: "In the short term, a seamless transition deal is necessary to protect the free flow of information and provide legal certainty to businesses and consumers.
"If no transition deal is agreed, the UK's potential £240 billion data economy is at risk of isolation."
TechUK deputy chief executive Antony Walker said: "The free flow of personal data across borders is fundamental to trade, commerce and communication.
"The tech sector, and increasingly every business in the UK that does business internationally, needs a clear legal basis for data transfer post-Brexit."
Mr Walker called on the UK and EU to agree a "mutual adequacy agreement" that would provide a watertight legal framework for the industry.
"It is not yet clear whether the Government's 'unique' solution would go down this route," he said.
And he warned: "Securing an adequacy agreement or any other unique arrangement will take time. The fastest adequacy decision ever given by the EU took 18 months.
"This again underlines the need for a significant, time-limited interim period that allows both Government and businesses the time needed to adapt to a post-Brexit system."
Mike Cherry, national chairman of the Federation of Small Businesses, welcomed the document's "common sense approach".
He added: "Many... small businesses will be relieved that Government is trying to avoid a regulatory 'no man's land' by committing to keeping harmonised data protection standards."
Liberal Democrat Brexit spokesman Tom Brake, a leading supporter of the Open Britain campaign group, said: "The Government's approach to these position papers is becoming farcical. On data, yet again we see a total lack of detail.
"All we know is that the Government intends to spend time, money and effort trying to replicate the situation we have now."