It does not prevent me from sinking them :p. If they are neutral, they do not have to trade with England....
Have to be careful, sunk too many of them, you will los your command, career over.
In three patrols I sunk three neutrals (not on purpose, they were in convoys and either mistaken for British during night attacks on convoys or hit by torpedo which missed its original target) and at end of third patrol, was informed I was removed from command, court martialed etc.
I changed this my mod for dark waters, still neutral but no career ending penalty for sinking them. Since the penalty is neutral, I do not believe gain renown for their sinking either.