After months of negotiations, the European Union and the United Kingdom finally reached a post-Brexit trade agreement.
We’ve dug deep to find out how the new deal will affect accounting and finance in Britain, and what will change for UK accountants post-Brexit. Continue reading to learn what to expect and how to prepare yourself, your firm and your employees for what’s to come.
EU countries account for nearly 46% of UK exports, meaning the UK stood to lose $32 billion without a trade deal. So British companies were relieved at retaining the UK-EU Free Trade Agreement (FTA) on 24 December 2020.
While the FTA avoided the immediate disruption from a no-deal Brexit, the UK is already experiencing changes to its trade:
- Several EU retailers, including bicycle part firm Dutch Bike Bits, no longer deliver to the UK due to the increased bureaucracy and additional costs of adhering to UK tax laws.
- Smaller UK firms have suspended trade with the EU until they can see how the new changes will impact their operations.
- The UK Road Haulage Association already reported that some trucks are already turned away at channel crossings because of Brexit paperwork.
- New paperwork introduced for all British fishermen, including European Health Certificate proving fish meet regulatory standards, created ‘red tape’ which left Cornish fishermen’s’ catches to rot in UK harbours.
Many economists worry that Brexit will create more paperwork and barriers to trade, which will hurt the UK’s economic growth in the long run.
With the new paperwork and procedures comes financial changes that accountants should be aware of. The main ways Brexit will affect accounting and finance in the UK include:
The UK and the EU agreed to support efficient cross-border trade in terms of documentary clearance and transparency. However, traders can still expect a significant amount of bureaucracy, partly from the customs declarations they must make for any goods entering or leaving the UK –– including goods transiting between the UK mainland and Northern Ireland.
The Brexit trade deal ensures tariff-free and quota-free access to the EU, meaning both sides can continue trading in much the same way as they did before. Although, businesses will now need a UK EORI number (Economic Operator Registration and Identification) to move goods in or out of the UK.
When preparing annual accounts for financial years beginning on or after 1 January 2021, companies need to use UK-adopted International Accounting Standards (IAS) instead of EU-adopted IAS. UK companies will also need to appoint a UK-registered audit firm to sign any audit reports on their behalf.
UK-incorporated parent companies with a subsidiary or presence in a European Economic Area (EEA) country need to comply with the member state’s reporting requirements. British legal firms also need to adhere to specific laws in that member state, since EU legislation no longer applies.
Additionally, financial institutions like banks or insurance firms need to follow disclosure and transparency rules issued by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
As a result of Brexit, UK businesses have to apply VAT when trading with EU countries just as they would with non-EU members, and vice versa for EU countries dealing with the UK. Companies may also need to register for VAT in the EU country they sell to.
HMRC has automatically enrolled VAT registered companies that have already traded with Europe, and firms below the VAT threshold need to apply online.
The UK withdrew its VAT Mini One Stop Shop (VAT MOSS) scheme, meaning British digital companies must also declare sales and pay VAT to the individual member state they deal with. Businesses providing digital services to customers in the EU can still use VAT MOSS but will need to register for it in each EU country where they sell services.
However, businesses registered for VAT in the UK can use postponed accounting for imports from both the EU and non-EU countries. Companies won’t need to pay import VAT when their goods arrive at the British port or airport. Instead, they account for it on their VAT return.
VAT for Northern Ireland
Northern Ireland’s border with the EU remains open, which means companies must pay UK import VAT on any goods imported into Britain from there. Companies importing goods from Britain to Northern Ireland must pay EU import VAT (which they can defer via postponed accounting). Imports and exports between the European Union and Northern Ireland will follow current EU procedures.
As a result of the Brexit deal, British-qualified accountants no longer have a credential that is automatically recognised by all EU member states. Countries such as France, Denmark and Greece, will require British accountants to undertake an ‘economic needs’ test to work with or in their respective country. However, some EU member states, including Germany, Italy, and Spain, still recognise UK professional accountancy qualifications without any restrictions. So, always check what each country requires before conducting business there.
Accountants will primarily feel the effects of Brexit through their customers. Businesses may relocate, or their supply chains may get disrupted by customs checks, and free movement changes could result in skill shortages.
Since accountants are the first port of call for many companies seeking advice under challenging periods, the Brexit trade deal will likely have a massive impact on the level of inquiries made to accountant firms. Expect clients to look for more guidance, including help with planning, forecasting, and managing working capital.
Prepare for Post-Brexit with INAA
Here at INAA, we connect accounting firms who aim to deliver quality professional services around a shared vision to make global business personal, and take personal business global. With every industry change, our collaborative association of international businesses is committed to being a part of the conversation around auditing and accounting.
Join today to start building powerful business relationships.