Brexit’s journey into the unknown
Thursday, February 28, 2019
With barely a handful of days to go until Brexit was due to happen, you would be hard pushed to find a soap opera offering as much drama, despair and complicated cliff-hangers.
With barely a handful of days to go until Brexit was due to happen, you would be hard pushed to find a soap opera offering as much drama, despair and complicated cliff-hangers. Yet, here we are on the countdown, with very little idea of how the coming months and years will impact on the UK business landscape. And as MPs and pundits struggle to easily explain and map out the path Brexit will take; accountants and their clients will find it impossible to fully prepare for the outcomes. However, here the CPAA looks towards the future and highlights some areas that practitioners can focus in as we journey into the unknown.
Ordinarily, at points of regulatory change and potential economic and trade upheaval, professional advisers provide critical support for their clients and are often the first port of call. Yet we are in unprecedented times, where these trusted advisers are in the same boat as the businesses they serve. The stark reality is that every industry in the UK will feel an impact from Brexit – positive or negative – but it is hard to tell what. Ultimately, accountancy practices not exempt.
Most recently, at the time of writing, MPs have voted to reject a no deal Brexit. They have been denied the chance to vote again on the Prime Minister’s deal, having rejected it twice. Consequently, Theresa May has written to the European Council to request an extension to article 50. Despite speculation that this extension could last years, the Prime Minister said she is “not prepared to delay Brexit any further than the 30th June.” The uncertainty upon markets, trade and business growth, cannot be underestimated as we remain in Brexit limbo and political purgatory.
Below, we examine some of the areas that practitioners can review with clients and use to prepare, as we await confirmation of Brexit’s next steps:
- Contingency planning: The Chancellor announced in his Spring Statement that he had squirrelled away £26.6 billion in his ‘no deal’ savings pot but it is likely that relatively few businesses will have any provisions set aside for Brexit, unless they had the means and foresight to be prudent, or stockpile provisions. For practitioners with SME clients, there is a real challenge in dealing with firms that scarcely have the time and spare funds for scenario and contingency planning. Yet preparation is the only sensible course of action and building up even a modest cash reserve is advisable, especially if the firms need to seek sourcing or supply chain alternatives. An audit of the key areas of risk within a business is also a good starting point, if clients have not already done so.
- Consult Companies House: Recently published were the changes to Companies House forms, in the event of a no deal Brexit. It will impact upon businesses with a ‘home’ country in the European Economic Area – and all overseas companies will move to the same reporting requirements. Corporate officers will need to register new Companies House forms relating to company incorporation, appointment of officers and change of officers’ details. Companies will need to ensure they use the correct version of the CS01 Confirmation Statements form. And there will be changes in relation to Societas Europea and Europe Economic Interest Groupings in relation to cross-border mergers. While these changes would only kick-in should no deal go through, practitioners should learn the requirements.
- European offices: Businesses only based in the UK are unlikely to see any immediate or major changes to accountancy obligations, and the regulatory workload will stay the same. Yet this may not be the case for British businesses with EU branches, and compliance with the UK Companies Act may not be enough. If the business is based here in the UK, but listed by an EU market, there could be even more impact. There is a chance more information will be required on IFRS compliance to that country’s authorities. It is wise to plan and discuss this with clients that fit this description.
- HMRC’s warning on VAT: The situation we face with Brexit is hardly eased by the lack of governmental guidance filtering down for accountants to gen up on and apply to clients’ needs. So far, HMRC has written to 145,000 VAT-registered businesses explains the potential changes to customs, excise and VAT in the event of a no deal. HMRC advises businesses register for a UK Economic Operator Registration and Identification number (for which there could be delays), to decide whether a customs agent will make import/export declaration or if the business will handle via software, and to contact haulage and transport suppliers to find out whether additional information is needed for safety and security. Practitioners will know if clients fit until this category and should also consider whether businesses below the threshold would also benefit from this guidance.
- The Irish predicament: Practitioners with clients that operate on either side of the Irish border will potentially face additional challenges. Since customs and security posts came down at the border between the North and the Republic in the 1990s, cross-border business links have thrived, especially for agricultural, machinery and transport sectors. The prospect of barriers returning is a cause for concern for businesses on both sides of the border, as is the failing value of the Pound.
- Labour market changes: The rights of those from non-UK European nations to work in Britain were protected by law, but we are in different times now and Brexit could throw this into the air. Even with some assurances for Europeans currently living and working here, there is much uncertainty, especially for future recruitment. It could force UK businesses to hire from home turf and may prompt European firms with a UK base to move elsewhere if the talent is not there or legislative burdens are too much. Speak to clients about their teams and concerns they have about retaining and attracting staff, and the funds and resources they may need to set aside in preparation.
- How to import and export: Brexit is undoubtedly going to be testing and harsh for those trading with the EU or moving goods through there. As many as one in four small businesses recently cited in research that political uncertainty is a big obstacle for their business. Some companies are already reporting disturbances to orders and expect it will get worse, perhaps prompting them to make or place fewer or less frequent cross-border – especially cross-channel – deliveries or orders. SMEs report that official government guidance on how importing will work in the event of no-deal is impenetrable. It will be a new economic environment and practitioners need to the ready to advise and help – there will be a greater degree of problem solving involved.
- Tricky tariffs: Firms buying from and selling to businesses in the EU and beyond are understandably keen to know what duties they will encounter – and it is extremely complex. Thousands of tariff codes mean those trading must consider the minutiae if their products. For instance, the EU’s market access database spans 75 different types of footwear alone! Consequently, faced with such a hefty amount of extra information to research, many businesses are delaying until it is necessary. In December HMRC launched an £8 million grant scheme to help companies to prepare for extra customs declarations, aimed primarily at freight forwarders and customs brokers, it is available for any business that trades with the EU and application look set to close at the end of this month, so exporters would need to get in quickly. Practitioners should consider if they are willing and able to offer support or services relating to tariffs.
- Seek the positives: Uncertainty breeds anxiety and that is a natural response. However, there is every chance many businesses – accountants included – will be benefit from Brexit, as it allows proactive firms to come forward and potentially reduces some of the competition. Clients are going to be more eager for support from their advisers, especially if they are seeking innovative new ways to operate, trade, find staff and secure finance. Long term, there may be changes to VAT and tax laws, which will need accountants’ expert guidance to navigate. Practitioners must keep up to date with changes and understand clients’ potential needs. Even asking ‘what does Brexit mean for your business’ is a good starter for 10 to get them thinking and you planning. Those willing to give sounds and proactive advice could reap the rewards.
So, what next for Brexit?
Members of Parliament have backed a delay and Theresa May has requested an extension to Article 50 from the EU. Assuming member states agree, Brexit will be postponed until 30th June. Voting to delay Brexit does not mean that leaving the EU without a deal is ruled out; should the EU not grant a delay, or if the UK and the EU are unable to make a deal during an extension, this would still be the outcome. In her letter to Donald Tusk, the PM said, “it remains my intention to bring the deal back to the House”, seeking to get her deal through Parliament at the third time of asking.
However, if the extension rumbles on, the government could propose to negotiate a completely new deal. There could be a whole new renegotiation, which would take time. It has been suggested that this could look more like the so-called ‘Norway model’, which has a closer relationship with the EU. However, if the EU puts its foot down and refuses to re-enter negotiations, the government would have to opt for a different option. It could potentially bow to the People’s Vote and hold another referendum. Some MPs want to hold a binding referendum, where the result would automatically take effect. The Electoral Commission would need time to get another referendum organised, which could take in excess of five months.
Another option is that the PM could hold an early general election to get a political mandate for her deal. Or Labour could table another motion of no confidence in the government, triggering an early general election. There is still the slight chance Brexit could be ‘cancelled’, as the European Court of Justice has ruled it legal for the UK to revoke Article 50. Yet the government is still committed to Brexit, so unless a new referendum or a new government changes it, this seems unlikely. Even were Theresa May to resign, whoever ended up in charge would still face the same basic range of Brexit options… at which point, this article and its issues and guidance would still apply!
Brexit remains one of the biggest political, social and economic changes we have faced as a country – at least in recent years – and none of it is straightforward. For businesses, it brings terrible uncertainty and now, more than ever, trusted advisers have a crucial role to play. The CPAA continues to follow the Brexit situation closely and will keep you updated with information and guidance.