What will Brexit mean for accountants, and for their clients? The landscape is changing fast. This regularly updated page provides a handy reckoner of the latest developments and guidance.
Theresa May’s resignation as Prime Minister may have increased the chances of a no-deal Brexit. This is because a number of the candidates to be the next Conservative Party leader say the UK must leave the EU by the end of October – even if this is without a deal.
The Government has won agreement from the EU to grant an extension to Brexit until 31 October. The UK could leave earlier if a withdrawal agreement is sanctioned by MPs.
The Conservative leadership election will take until the end of July. This may leave only a short period afterwards to work on a deal – both in Parliament and with the EU.
In the continuing uncertainty the best advice for accountants and bookkeepers is to be prepared:
- review the HMRC advice for a no-deal Brexit
- understand the implications for business.
As the uncertainty continues, the Government has been raising awareness for planning and contingencies, including publicising a series of videos from recent HMRC webinars.
How does Brexit affect clients?
Accountants will feel the effects of Brexit most through the effect on their customers.
Businesses may relocate. Supply chains could be disrupted by customs checks, possible skills shortages through changes to free movement, and contracts by amendments to laws.
The main risk is of a big hit to economic activity. This could have a knock-on effect on clients’ stability. Accountants may also see fee pressure as a result.
But uncertainty could also have benefits to accountants. In times of uncertainty, clients need more advice, along with extra help with planning, forecasting, and managing working capital. The best way to offset these risks is by offering to help customers through the tricky times ahead.
If the deal is sealed
Business confidence will be higher under a deal, at least initially.
Businesses crave certainty and the status quo will be maintained until the end of 2020, giving all concerned more time to plan and adjust. However, after the transition period many changes will come into effect.
Qualifications – the prospect of accounting qualifications not being recognised across Europe will recede. To date, the process has been to check that qualifications would be sufficient and accepted in the destination country. Once confirmed, the holder would be able to work in other EU countries. Under the Draft Withdrawal Agreement and Outline of the Political Declaration, the equivalence would exist only in the country in which the application was made.
So if an individual were to take a post in France with a company that also had operations in Italy, it might be wise to apply for recognition in both countries.
Applications can be made until 31 December 2020, the end of the transition period. There will be an additional nine months for applications to be determined, ending on 31 August 2021.
Customs & VAT – during the transition period, the UK will remain inside the customs union. There will, therefore, be no reason for any changes until 21 December 2020. After this, VAT is virtually certain to be retained, but over time may be subject to gradual change.
No-deal – the implications
If Theresa May’s deal is refused, there will more short-term upheaval – but the possibility of greater clarity once the transition period is over.
Refusal to back the plan will mean we revert to the no-deal scenario.
This would mean:
- customs checks for businesses buying and selling from EU countries
- more uncertainty for business
- implications for audit and reporting
- Government contingency advice will apply.
- Flights to EU countries could be significantly affected as air traffic control agreements lapse.
Clients and business
The Bank of England believes that economic activity will be suppressed by either a deal or a no-deal Brexit. That means individual companies will face more challenging trading. Accounting professionals, on the other hand, tend to do well in difficult times. The uncertain days ahead are an opportunity for them to get on the front foot and use their advisory skills to help clients.
AAT members should advise their clients and employers to assess their resilience should sales dip, supply chains worked more slowly, or were debtor days to increase. To illustrate, at the Conservative Party Conference an audience member who ran a small loft conversion company asked an expert panel, ‘This won’t affect me, will it? We use supplies from northern France and builders from over there.’ The expert panel responded instantly: ‘Yes, it will.’
Companies need to realise that customs declarations and tariffs will at some point apply to goods shipped to and from the EU.
If it’s no-deal – If the UK exits the EU without a deal, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU, in broadly the same way that already applies for goods traded outside of the EU.
There would be implications on cash-flow as a result of this. So the Government is promising to introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.
If there’s a deal – It is very likely that VAT would be retained after the transition period. Changes to UK law may be needed to give a legal standing. Rates and categories could also change over time. But it may be fair to expect the Government will err on the side of avoiding unnecessary upheaval.
News and developments
Accountants advise farmers to hold off on all significant investments until the Brexit fog clears
Farmers have been warned to hold off on any significant investment decisions until the Brexit fog clears.
Hack a no-deal Brexit
With the likelihood of a no-deal Brexit looming ever closer, Avalara’s Richard Asquith looks at how to avoid the worst consequences.
Demand for financial services falls due to Brexit
Brexit is one factor behind the first dip in five years says the CBI and PwC. But some sectors still buoyant.
Accountants call for postponed accounting on Irish VAT
Whether or not there is a deal, postponed accounting should be applied to help Irish importers says The Consultative Committee of Accountancy Bodies.
FRC reviews fees auditors will pay after Brexit
EU auditors will fall under the heading of third country auditors after Brexit – either when the transition period is complete, or sooner if there is no deal. FRC has begun a four-week consultation into the fees that will apply to them.
MTD resources reallocated to Brexit
As the Government ramps up preparations for a no-deal Brexit, HMRC has reallocated resources from MTD towards projects that support leaving the EU.
View the story here.
Government preps company law update
The Government has issued a draft statutory instrument to replace references to the European Economic Area (EEA) regulation, with references to the Companies Act 2006 and other supporting regulations. “It is significant, but not of great interest. Fundamentally, it is needed to get our post-Brexit companies legislation in place,” said AAT tax and policy advisor Brian Palmer.
The draft regulation can be viewed here:
Accountants hit out at cost of second audit report
Chartered Accountants Ireland wants to stave off the prospect of Irish companies needing a second audit report if they retain an auditor from the UK. In a ‘no-deal’ scenario, UK audit clients listed on EU regulated markets will need an EU registered statutory auditor to produce a second audit report on their December 2018 accounts.
Barry Dempsey, Chief Executive of Chartered Accountants Ireland said “Companies of all sizes, and those who draw their livelihoods from them, need to avoid any breakdown in the flow and availability of corporate information which could have broader repercussions on liquidity and investment. “
AAT Knowledge hub
15 March 2017
What will the effects of Brexit be for accountants? Many of the effects will fall upon clients and will be felt indirectly.
Given the importance of the service sector, there have been concerns there may be an exodus of financial firms away from the UK after Brexit, which could negatively impact accountants. ‘Without the backing of the single market it’s true that there will be companies who leave,’ said Paul Byard, Managing Partner at UHY Hacker Young. ‘However, we’re finding at the moment that we have an equal number of clients benefiting from exporting, as we have suffered from importing.’ Some financial services companies are likely to relocate to Paris and the Netherlands, Byard says, ‘but there will always be work for UK-based accountants and whatever happens on the wider stage, accountants will always find strong employment options here.’
Brian Palmer, Tax Policy Adviser for AAT, said ‘Yes, potentially some will go. But the flipside is, if we’re coming out of Europe, in itself that will present many opportunities to accountants.’
PwC research suggests the UK is now equal third with Germany when it comes to company growth prospects, rising from fourth in 2016, and London is the second most important city after New York. The report attributes this to investors being keen on tech and finance industries in the UK and that despite Brexit and uncertainty, ‘investors do not appear to be deterred’. All this post-Referendum – but the caveat, of course, is that Article 50 has not yet been triggered and we have not left the EU.
What about tax – with Britain separating from Europe, how will this affect tax matters? ‘Most tax excluding VAT is an English law construct anyway,’ Palmer says, ‘so there are not likely to be any immediate changes.’ But with VAT, Palmer believes it’s likely that initially, ‘things will stay in place and then later there will be a divergence.’ For example, some zero-rated items are tied to our current relationship with Europe and could be changed post-Brexit. ‘But all this depends on how frictionless we want our relationship with the EU to be,’ Palmer adds. ‘If we want a stable, long-term relationship, it’s likely we’ll continue to conform to Europe’s expectations.’
Hand on the tiller
Specifically for accountants, ‘the key is to make yourself a go-to firm,’ Palmer says. ‘Accountants can be the professionals who can give industries the advice they need on how to adjust to Brexit. Manage expectations; let people know what’s going to change. But also, show business continuity and explain where duties, cross-border impacts and VAT will, or will not, stay the same.’
By setting out your stall in this way, accountants can be one of the early trusted advisers on the new landscape. ‘Be ready to blog, tweet and send newsletters on changes – it will generate awareness of your firm, be of interest to all businesses – and perhaps bring new clients to you.’ But accountants must be responsible, so ‘don’t fall into the trap of filling the void of knowledge with speculation,’ Palmer adds.
If the important thing is to keep a level head, what’s the long-term view for accountants as Brexit gets underway? ‘I think the very big picture is that the majority of businesses and business decisions will, in fact, not [be] affected by Brexit,’ Byard says. ‘Time will tell but much of the scaremongering will calm down and 90% of businesses will not be affected.’ Where Brexit does cause problems, it also offers silver linings. ‘Many of our clients for example are in manufacturing and exporting and they are performing well because of the weaker pound.’ Ultimately, Brexit does not mean that accountancy firms will suffer. ‘We’re seeing a steady growth in turnover of our client base,’ Byard says, ‘and that means steady growth for us too because growing clients means steady fees.’
‘Business is so globalised these days anyway, and the UK and EU are such big markets, that they will still want to work with us and vice versa,’ says Palmer. ‘There’s also the chance to re-ignite business with Commonwealth countries. There will be a huge level of re-organisation – but the possibilities are there.’
How Brexit will affect accountants – key take-outs
- Funding will not be as problematic as feared. ‘Reducing EU funding will cause some disruption,’ Brian Palmer says, ‘but it will not unduly affect talent pipeline long-term.’
- Brexit does not have to be lose-lose. ‘The vast majority of accountants in my practice deal with SMEs; businesses with millions of pounds of turnover, but they’re still ‘small companies’ on paper,’ says Paul Byard. ‘I think the market is fine for those companies; and this means accountants will be fine too.’
- Keep an open mind. ‘Conjecture is rushing to fill a vacuum,’ Palmer says. ‘The truth is that we don’t really know what’s going to happen yet – because Brexit hasn’t got underway.’
AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.