What the Brexit deal means for accountancy
Picking through the Brexit deal for signs of opportunity amid the extra red tape, accountants are weighing the increase in queries from businesses keen to understand how it affects them with the potential economic downsides of a longer-term loss of trade.
The post-Brexit trade agreement struck between the UK and European Union has done little to placate unease in the accounting sector that services have been neglected by the government.
The zero-tariff, zero quota deal announced on Christmas Eve avoided the dreaded no-deal scenario but left unanswered questions around mutual recognition of skills, future regulatory oversight and supply-chain interruptions.
“We remain concerned that the provisional agreement has little to say about services, which are of such vital importance to the UK economy and this must be addressed in the near future,” said Michael Izza, ICAEW chief executive.
Professional services delivered £225bn gross value added to the economy in 2019 and presently employs 13% of the UK’s workforce. The EU is the largest market for the UK’s professional and business services, amounting to 37% of exports at £35bn, but the sectors were not included in the Trade and Cooperation Agreement (TCA) and many of the details must be negotiated later, potentially with individual countries.
“In particular, we hope that the recognition which the agreement does contain for UK solicitors, barristers and advocates will soon be extended to other professions,” Izza said.
Alongside the intensifying battle with Covid-19, Izza said many businesses around the UK are struggling with cashflow and disruption to their markets and supply chains. “We urge the government to recognise this and to spare no effort to minimise disruption and help companies adjust as quickly as possible,” he said.
The deal that arrived on Christmas Eve could have brought far more clarity for the sector. Uncertainty has dominated the issue for four years, particularly concerns around supply chains and staffing, and the deal brought little clarity, said Steve Taklalsingh, UK MD of small business banking app Amaiz.
“While these also affect firms, the impact of Brexit was always likely to be most felt through clients and has increased the need for advice and placed an emphasis on planning,” he told AccountingWEB. “A major risk remains for investment in the duplication of regulatory and technology infrastructures. While all annual accounts must now use UK-adopted accounting standards, and these currently follow the EU adopted IAS, they could be subject to divergence.”
The issues of equivalence and divergence will remain critical over the next few months, he said.
The new rules will add red tape, slow down processes and upend just-in-time supply chains that will take a while to adjust to the new reality, added Matthias Matthijs, senior fellow for Europe at the Council on Foreign Relations. “Even more important, however, is the likely negative effect on trade in services, where the UK has a comparative advantage, since there will no longer be automatic recognition of professional qualifications and licenses,” he said.
Reciprocity of accounting qualifications
Having left the EU, British qualified accountants do not have a credential that is automatically recognised by the member states, said Rob Sowerby, director of professional courses at London School of Business and Finance.
“The question is, does this matter? Well in terms of a lot of what accountants do this will be of no consequence but the issue arises where statutory accounting work is needed,” he said. “This will rebound onto the attractiveness of candidates in the wider European market who already will be at a disadvantage in the international jobs market.”
British passport holders are immediately less attractive for a European role given the need for visas or other documentation to operate in a member state, he said.
“Are there any good things for the profession? Possibly the increase in bureaucracy will require more assistance from the accountancy profession, but this will be countered by the probable reduction in economic activity brought on by such regulation, something that may lead to a downward revision of income,” Sowerby said.
Uptick in queries
With accountants the first port of call for many companies seeking advice in difficult periods, the Brexit trade deal is likely to have a huge impact on the level of enquiries, said Chris Newell, managing director at business advisory firm Quantuma.
“It’s typical that this all seems to have come at once – accountants will already be under enormous pressure advising clients on the impact that Covid will have had on their businesses, as well as the traditionally busy end of tax year period,” Newell said.
While many will have assumed the worst and put plans in place for a ‘no deal’ Brexit, lots have been adopting a wait and see approach, Newell said. “As a result, accountants will be under pressure to provide extremely detailed and complex advice,” he told AccountingWEB.
This will cover everything from businesses that import and export dealing with the UK’s newly separate customs union to issues surrounding HR and GDPR, he said.
“Given the multiple areas of uncertainty, I would advise that clients look to get their tax return information in as soon as possible,” Newell said. “This will reduce the annual rush to submit and lessen the pressure on accountants to enable them to dedicate time to advising clients on more complex EU and Covid-related matters.”
Tax and tariff planning
Future tax considerations are key, said Chris Downing, director of product management for accountants and bookkeepers at Sage.
“UK businesses now treat EU countries like they already do countries outside the EU, so with the change to VAT terminology and calculations with postponed VAT accounting to mitigate cash flow issues, accountants need to reorganise VAT management methods and processes,” he said.
On 1 January, the UK introduced the deferred import VAT scheme so traders importing goods into the EU and rest of the world do not have to make cash payments of import VAT.
“But outside accountancy, navigating the complexity of customs requires a different skillset,” said Downing. “For this, hiring a customs broker, freight forwarder or similar operative to help with customs relating to importing and exporting will be key.”
The trade agreement, whilst allowing free trade without additional tariffs, has complicated the issue of VAT, where is it now applicable and ultimately who bears the additional, added Taklalsingh. “This makes advising clients tricky while new regulations are being practically applied,” he said.
Best of British
Others were bullish about the new dawn and urged British firms to take the same analytical approach towards EU trade as they do for areas such as Asia or the Americas.
"It is my belief that for now at least the impact on the high technology, accounting and professional services sector in which we operate will be mostly benign,” said online finance and accounting expert Hugh Scantlebury, CEO and co-founder of Aqilla. “Whilst it is true accounting service providers will in effect lose their automatic right of access to EU markets and some may face additional restrictions, UK businesses will simply need to ensure they comply with the regulations in each individual country where they elect to operate.”
He said many firms have already had to adapt when provisioning services beyond the scope of the EU already.
"It’s worth remembering that the reputation of UK firms to deliver high quality, highly respected, innovatively technological and robust professional accounting services is world renowned, and I therefore foresee little or no change to firms continuing to competitively add real value to international clients across the spectrum,” Scantlebury said.
For an overview of the VAT and customs implications now the UK have left the EU, Jason Croke and Neil Warren have written a number of practical guides in their Brace for Brexit series.