Is your accounting ready for Brexit? Oct 25, 2019Views: 363
Brexit continues to provoke frenzied debate across the UK. Although recent headlines suggest that the newly EU-approved deal yet may stand a chance of meeting parliamentary approval, SMEs across the country are learning that whilst it’s important to hope for the best, it is always a good idea to prepare for the worst.
One message that Downing Street has made incredibly clear is that whether a deal is negotiated with the EU or not, the UK will leave the European Union as soon as possible.
While this tough talk is useful in scoring political points among voters who simply want the indecision and failed negotiation to be over with, the prospect of actually leaving the EU will be the subject of much hand-wringing for owners of SMEs as they have to adjust to different legal and administrative processes. Whatever your personal politics and views on Brexit, your business needs to be prepared for it. Whether the deal is voted through parliament or the UK crashes out with no deal, leaving the EU will have far-reaching ramifications for businesses of all shapes and sizes.
If you are still unsure about the implications of Brexit on your accounting, there’s no substitute for liaising with an experienced, qualifiedchartered accountantwho can provide specific advice and guidance around the possible implications that Brexit might have on your accounting. However, if you’re just looking for the broad strokes, we’ve prepared this list of last minute accounting preparations that SMEs should make to be ready for Brexit.
Changes to VAT and customs
After Brexit, businesses that move goods into and out of the UK and trade with Europe will need to apply for an EORI (Economic Operator Registration and Identification) number. This will be prefixed with the letters GB. If your business is VAT registered, the good news is that HMRC has automatically enrolled you in this scheme. However, if your business turnover is below the VAT threshold, you will need to apply for this online. The application is fairly straightforward and takes around three days. Click here to start the process. Please note that businesses that import and export goods exclusively across the Irish border do not need to apply for an EORI.
Customs declarations will still need to be made for goods entering or leaving the UK. You can do this in-house if you have the right software or, alternatively appoint a freight forwarding service to make declarations on your behalf.
VAT registered business may well wonder what happens to the VAT system after Britain leaves the EU. The British Government website maintains that Britain will still retain its VAT system after we leave the EU and even if we leave with no deal, most UK businesses will be unaffected in most ways.
The principle, and perhaps most obvious change is that businesses trading within the EU will apply the same VAT when trading with EU countries that is applied when trading with non-EU countries. The government intends to stay as close to the current position as possible to mitigate the effects on British businesses. However, the UK will be able to set it’s own VAT rates in the longer term. Time will tell how this impacts businesses and the greater economy.
Unfortunately, the perk of “triangulation” by which businesses simplify VAT accounting across borders will no longer apply. Thus, British businesses will no longer be able to order goods in France and deliver them to other EU member countries. After Britain leaves the EU, businesses will have to register for VAT both in the country in which goods are ordered and in the country of intended delivery.
Interestingly, HMRC has announced that a postponed accounting scheme will be implemented for VAT on goods brought into the UK. This is designed to mitigate any adverse effects that fluctuations in VAT may have on cash-flow.
Thus, UK VAT-registered businesses that import goods to the UK (from within or outside of the EU) will be able to account for import VAT on their VAT return. This means that they will not have to pay import VAT when (or immediately after) goods arrive at the UK border.
If you are registered for VAT in any EU member countries, keep in mind that many countries have different registry requirements for non-EU businesses (which you will be after Brexit).
Immigration and workforce implications
The loss of freedom of movement throughout the EU will affect many UK businesses reliant on migrant labour. The good news is that you will still be able to hire people from within the EU after Brexit.
A 3 month visa-free period applies after which employees can apply for an EU Temporary Leave to Remain (TLR) while living and working in the UK. This covers workers for up to 3 years. Employers’ Right to Work checks will remain the same, requiring checks of EU / Swiss passports or identity cards until 2021.
After 2021 the UK immigration system will be overhauled to a new skills-based system which is detailed here. A skilled workers route will be open to citizens of all countries and there will be no cap on the number of employees businesses can take on under this scheme.
EU nationals already in your employ (and their family members) can apply for UK Settled Status if they have lived in the UK for at least five years. They have up until 31 December 2020 to do this. Employees who have been resident in the UK for less than 5 years can apply for Pre-Settled status until they stay in the UK reaches five years and they can apply for Settled Status.
Needless to say, the loss of freedom of movement will impact business owners for whom international travel to EU member countries is commonplace. In the event of a No-Deal Brexit, freedom of movement will end immediately while a deal may allow for a more phased cessation. Even in the event of a No-Deal Brexit, travel services such as Eurotunnel, flights ferries etc. are still expected to continue running as usual.
UK travellers will no longer, however, be able to use lanes for EU, EEA and Swiss citizens at passport control and may be expected to show their return ticket at European borders.
In order to travel to travel to EU member countries, passports will need to be less than 10 years old with at least 6 months left on them. UK residents will not need a visa for any EU country when staying for less than 90 days.
Depending on the type of deal agreed (if any) access to state health care through European Health Insurance Card (EHIC) cards may no longer be available to UK travellers so business trips will need to be covered by a valid travel insurance policy which includes healthcare.
Brexit will affect the way in which businesses will have to prepare their accounts. They will need to use “UK adopted IAS” instead of “EU adopted IAS”. While standards will remain largely the same initially, they may diverge in later years, which is why it’s so essential to ensure that you have a qualified and knowledgeable accountant like AC Chartered Accounts in your corner, especially in the event of a No-Deal Brexit.
In terms of account auditing, UK companies will need to appoint a UK registered audit firm. The individual UK registered auditor will sign off on the audit report on behalf of their firm. Some rules as to how individuals and firms are approved for registration as auditors are also likely to change.
If you feel that your business faces specific threats as a result of leaving the EU, the FRC advises full and detailed disclosure, along with providing details of actions you plan to take or have taken already.
As we get closer to the 2020s businesses of all kinds and sizes are more sensitive than ever about their data. Most of the data protection laws pertaining to the data of SMEs will remain the same after Brexit. Most notably, the GDPR (General Data Protection Regulation) rules will still be rigidly maintained and the government will incorporate it into UK law after Brexit has been carried out.
If your business does not receive personal data from the EU, it is unlikely that much (if any) additional preparation will be required to ensure data protection compliance in the wake of Brexit.
If your business does receive personal data from contacts in the European Economic Area (EEA), extra steps will need to be adopted to ensure that the flow of data and minimise disruption after Brexit.
If your business has an office or branch in the EEA, or you do business with clientele in the EEA, it will need to comply with both UK and EU data protection regulations after Brexit is carried out.
Whatever form it takes, Brexit is likely to have sweeping logistical and compliance implications for many UK businesses. Make sure that with the help of a trusted accountant your enterprise is ready for the challenges of the transitional period.
A&C Chartered Accountants are an independent Manchester accountant working from offices in Manchester, Sale and London, offering SME accounting services from new business advice and startup accounting through to tax services, payroll and financial forecasting.
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