Brexit, in case you didn’t know, is short for ‘British exit,’ and refers to the UK’s decision to split from the European Union. The split will come into force from 1st January 2021, with major implications for the accounting and financial services industries as well as financial reporting standards.
With around 1.1 million people in the UK employed in financial services, Brexit is likely to disrupt the UK’s standing as a major financial hub.
Changes to the free movement of goods and people could also lead to skill shortages and supply chain disruptions, which means that clients will have a more uncertain outlook towards the future of their businesses and look to accountants for advice.
REAL-TIME DATA COLLECTION
EY recently conducted a survey of over 1700 firms headquartered in the UK and internationally to understand how businesses believe Brexit will impact them and how they have prepared for the changes.
Disconcertingly, only one in five businesses said they had a good understanding of the risks of not preparing and had an action plan in place.
More than half of the respondents have either a moderate (36%) or a poor (17%) understanding of the risks. In comparison, as many as 40% of respondents believe that altered post-Brexit rules won’t affect business as usual once the necessary operational adjustments have been made.
Businesses must prepare for fundamental, long-term changes once Brexit comes through if they are to navigate the new world smoothly. Here are some ways in which accounting firms can be better prepared for the move:
1. Taxes and tariffs
From 1st January 2021, an Economic Operators Registration and Identification (EORI) number will be required to export goods to or import them from the EU. Moreover, UK Global Tariffs will have to be paid on all goods imported to the UK.
There could be other rules about new duties and taxes, so it is essential to keep an eye out for relevant announcements. In addition, have a look at your current client contracts to see how Brexit may impact them.
It may be worthwhile to hire a customs agent to fill out the necessary declarations. You can also consult with an EU-based accountant to see whether you will need to register for VAT in the EU countries where you have clients.
Any citizens of the EU, the European Economic Area (EEA) or Switzerland who are currently working as employees in the UK will need to register for settled status by 30th June 2021 so that they can continue living and working there.
Moreover, from 1st January, a new points-based system for sponsored workers (both EU and non-EU migrants) will come into effect.
If you haven’t already, you must check whether all of your staff members can continue to work in the UK and which of them will need to apply for settled status. It would help if you also verified that any of your British staff members currently working in the EU could continue to do so.
If you need to hire new staff members, be sure to keep ample time in hand for evaluating their skill sets.
There may be potential delays at borders as the UK adjusts to the new tariff rates, currency fluctuations and possible price increases. All of this could make banks and lending authorities more cautious about start-up financing.
If you have any start-up clients, help them speak to their bank or lender about temporarily increasing their cash flow or locking in prices at the present currency rates.
It would help if you were sure to have enough time in hand for any necessary documentation to be reviewed and approved.
4. Data regulation
Once Brexit is implemented, data transferred to and from the UK will most likely be treated by the EU the same way as data from other countries, which means that the UK will be subject to adequacy decisions by the EU before it can transfer data without restrictions.
If the adequacy decision is not made, GDPR restrictions will apply to data entering the UK from the EEA. In this context, accountants need to keep track of updates to UK data protection law and assess which paperwork and contracts need to be revised to reflect the new rules.
You should also check where your data is stored – if your cloud supplier hosts your data in the EEA, you may need to transfer it to the UK for the time being.
5. New markets
Brexit may well impact business with several EU countries negatively, which means that UK-based companies might want to explore other international markets. As an accountant, you need to check whether local law now applies to any of the countries where you have clients. You may wish to liaise with a local expert to improve your understanding of the local law before proceeding with business.
6. Tour Operator Margin Scheme (TOMS)
The TOMS negates the need for an EU tour operator to register for VAT in each EU country. After Brexit, the UK will no longer be regarded as an EU supplier.
This means that TOMS will still apply to sales made in the UK by the UK tour operators, but they may have to register for VAT in the EU countries where they do business, just as EU tour operators may have to register for VAT in the UK.
You should assist your clients with reviewing whether TOMS applies to any part of their supply chain and how they may need to adjust their supply chain after Brexit.
How Brexit will affect outsourced accountancy
Outsourcing has long been viewed as a viable, cost-effective alternative to additional in-house hiring for specific specialised accounting tasks.
Particularly as more and more businesses turn to the cloud, it makes sense for accounting firms to outsource non-core functions and streamline their operations.
Post-Brexit, there may be a short-term shift in favour of UK-based outsourcing services for firms that are extra wary of Brexit’s potential impact. However, since Brexit will not directly impact outsourcing regulations for countries like India or the US, UK accountants will be able to keep outsourcing as usual both before and after Brexit.
Therefore, if you want additional support until you sort out your clients’ paperwork owing to Brexit, do not hesitate to come to us. We can help you with a range of services such as year-end tax accounts, payroll and bookkeeping.
Call us at +44 20 3475 3537 to get your questions answered right now, or visit www.stellaripe.co.uk.