What effect will Brexit have on VAT and Accounting?

Mitigate the effect of the changes by seeking advice now

No matter which side you find yourself on in the UK-exit-from-the-EU-debate, there are some important changes ahead. One of the biggest impacts since the UK voted to leave the European Union and one of the worst things for business has been the uncertainty.

For business owners the uncertainty is terrible, so what should small businesses in the UK, whether they trade with countries in the EU or not, be doing to prepare? What could change in terms of law and tax? What are the best ways to mitigate the impacts of uncertainty and plan for possible changes? Where should you go for sound, impartial advice?

Winners and losers

There are always going to be winners and losers in something as ground-changing as Brexit. The thing is that, with Brexit, no one really knows what the effects are going to be. For example, the business advice website recently painted a quite negative picture of the "Brexit infection" saying if your trade is solely in the UK: "it is tempting to assume that you will be sheltered from the effects of Brexit … However business may find that their revenue stream is hit not only by their own reduced financial viability but by a second effect of Brexit: their customers may be struggling."

Planning is key

What has Brexit had an impact on already?

• The economy, Brexit definitely has had an impact on the economy
• It has already had an impact on the pound
• It’s had an impact on business investment
• It’s had an impact on borrowing
• It’s had an impact on employment, in hospitals and in agriculture noticeably

What could Brexit effect in the future, in three, five, or ten years’ time?

• Business practice in the UK and exports/imports
• Business conducted with the EU and imports/exports
• Laws (employment law, financial reporting, food labelling, health and safety, the construction industry, etc.).
• Tax, especially VAT

This is why planning ahead is key.

Q: How do you plan for turbulence?

A: You wear a safety belt.

Build up reserves and making sure you undertake some good financial planning

Any good accountant expert in tax, tax planning and business advisory is going to be helping their clients prepare now for some of the changes and impacts Brexit will probably entail. The real effect of Brexit will come down to the outcome of the negotiations made by the UK’s representatives in Brussels: whether it’s agreed that the UK will stay inside the single market and customs union or break from it altogether (which in my view the latter is looking increasingly unlikely) is the crux of the matter, and then the outcome will also impact on your individual business circumstance, it will all come down to whether your business is a service or supplies business. There is time to plan and now is the time to start.

A lot of the impact felt by business owners in relation to Brexit can be mitigated. Here are some points to think about. Accountants everywhere are looking closely at the changes, so it’s definitely worth consulting with an accountant about how to plan ahead for Brexit.

Your accountant and online accounting

Efficiency: in times like this, with the UK exiting the EU, with uncertainty and prices rising and the risk that there won’t be enough money going around for enough people to be able to pay for your goods and services, there is one thing that you can do right away. Increase efficiency and cut overheads. Work with your accountant on cost efficiency and your business advisor on time and volume efficiency.

Small savings, small cutting back strategies, small moves to greater efficiency, all these small moves add up to a large initiative over a month, a quarter or a year. And the way to show progress in this regard is reports, and the way to generate reports at the touch of a button is an expert Accountant + Online Accounting and Bookkeeping Software.

Definitely, Technology and Accounting are going to come into their own over the next months and years as the UK exits the EU. As legislation, laws, tariffs, etc. are rewritten, redrafted, redrawn, re-announced, as new Financial Reporting Standards (FRS) and new International Financial Reporting Standards (IFRS) are agreed in June 2018, then are announced and become law – and we’re all supposed to know the rules (ignorance is no defence in law) – we must be on the ball and ready.

So businesses everywhere, the one thing they should be doing above all else is to seek expert advice from an accountant that is also running online accounting software. This is the key to managing Brexit. Humans and machines will combat the uncertainty! No, in all seriousness, with technology, all the changes to FRS/IFRS: tax and VAT and pensions contributions, and expenses, and so on and so on, will all be immediately updated in the software.

Corporation Tax: Going down!

One great thing about the UK post-Brexit which is a known is that by 2020 the UK will have the lowest corporation tax rate in the G20 at 17%. That is a plus, which should not go unmentioned, because this already means a saving to all businesses, and we should not forget that.

Corporation tax is likely to become more regulated by the UK government.

The legal requirements of corporation tax are rumoured to be likely to change in the next five to ten years; it’s thought that the UK government may begin to regulate it more freely. For medium inter-European and large multinational companies, double taxation and high tax rates might become a big issue. Companies operating solely within the UK could find that the amount of tax they pay rises.

There are ways to plan for these scenarios, so tax planning now is definitely the strategy to take in terms of corporation tax and personal income tax. Now and in the future, with Brexit or no Brexit, accounting and an accountant that’s expert in tax planning able to generate meaningful forecasts and reports will boost business and increase its turnover.

Trade Agreements

The UK might negotiate free trade agreements with countries outside of EU on more favourable terms than previously and we should all be watching closely. Meanwhile businesses should be paying careful attention to changing legislation on overseas trade and should make all efforts to capitalise from the currency exchange rates: e.g. maybe retaining euros in a euro account, US dollars in a dollar account, changing suppliers depending on trade agreements that are ongoing, etc. Each individual business case will vary depending on your industry sector. Each individual business should seek expert advice from an accountant with online accounting and bookkeeping software.

VAT

VAT was an EU idea adopted by the UK government 40 years ago. It won’t be abolished even after we leave the EU, there’s no chance of that! But after Brexit the UK will be able to alter VAT law. It’s safe to assume that in the next five to ten years the VAT rate and the laws around VAT, as well as the goods and services affected by VAT are set to alter.

For example, businesses that sell goods in the EU could face import VAT on goods sold to EU customers and likewise EU business selling goods to the UK may have a VAT charge impose. VAT charges on goods bought in from the EU could seriously impact on cash flow and could affect pricing and supplier chains as well. Make sure you’ve planned for it, build up those reserves with the efficiency and overheads audit suggested earlier on in this article.

Changes in VAT mean changes in accountancy practices, but all online accountants will be fully up to date with any variations in the VAT requirements as they happen in real time.

Accounting and the law, seeking advice

Businesses will need advisers who can guide them confidently through the sea change. The changes Brexit brings must be perceived as opportunity rather than threat. Online bookkeeping and accounting software will streamline some of the change and make updating and recalibrating a much less stress exercise.

Employment law and immigration policy are going to present their own set of issues that, unfortunately, online accounting software will not be able to deal with, but the set of checks businesses and employers should do in this regard are stringent anyway and business and employers should be prepared to update their knowledge about the legislation regularly anyway.

Again, the way to mitigate falling foul of non-compliancy in terms of employment law and immigration policy, is to seek advice from an expert, an accountant is versed in certain aspects of this as it impacts on financial and accounting compliance.

For businesses seeking funding or credit, opportunities may present themselves in future. But there are other good opportunities for businesses in terms of the UK government’s seed investments (SEIS), which can inject funds into growing businesses without even having to approach a bank or other funding body, or R&D tax credits which provide businesses valuable and generous relief.

What’s that saying? "When the going gets tough the tough get going"

Brexit is definitely going to have an effect on UK VAT and accounting and probably many other areas of business and finance and the economy as well. Plan ahead, seek independent impartial advice now, and act on it. Then look for opportunity rather than seeking out all the negatives of what Brexit might bring.

Mitigate the effect of the changes by seeking expert impartial advice now.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.