Brexit is a topic you may wish to avoid as much as possible. But Brexit affects both your clients and your accounting firm, so it’s crucial to understand how it works.
The UK and EU governments settled a trade deal called the Trade and Cooperation Agreement (TCA) on December 24th 2020, to help determine the future trading relationship between the two markets. Britain officially left the EU at midnight on December 31st 2020.
This guide will discuss how Brexit will affect accounting firms and their clients now and in the future by looking at the following topics:
- What’s the impact of Brexit on small businesses?
- How will Brexit affect accounting firms?
- What does it mean for accountants as individuals?
What’s the impact of Brexit on small businesses?
Brexit affects businesses of all sizes and will almost certainly have some impact on your clients.
While sole traders or small businesses trading with suppliers and customers in the EU are likely to feel the blow the hardest, UK-focused clients might also notice the effect of Brexit.
Brexit could cause a 6.7% loss in GDP growth in the next 15 years in the UK. Therefore, your clients who only operate nationally should still consider how the Brexit-made economic shock could affect them.
Additionally, if your clients travel to the EU for work purposes, they might need a visa or work permit. You can find out more about what to prepare for travel to the EU on the government website.
Businesses that receive personal data from contacts in the EU or EEA, including names, delivery details, IP addresses, or HR data, might need to take extra steps to keep that data flowing legally. For example, your or your clients’ firms may need to put Standard Contractual Clauses (SCCs) in place with your EU partners.
Both you and your clients will need to make sure your UK qualifications are recognised by the relevant EU regulators or professionals. We’ll explain more about this later in the article.
How will Brexit affect accounting firms?
As an accountant, there are some changes that you should be aware of to help your clients (and yourself) navigate the new post-Brexit waters. These include:
The EU and UK agreed to support efficient cross-border trading by making document processing as clear and transparent as possible. However, traders can still expect a significant amount of paperwork.
If your clients trade in the EU, they need to make customs declarations for any goods entering or leaving the UK. This includes goods transiting between the UK mainland and Northern Ireland.
The Brexit trade deal ensures tariff-free and quota-free access to the EU, meaning trading can continue almost like before. The difference is that businesses now need a UK EORI number (Economic Operator Registration and Identification) to move goods in or out of the UK.
Companies need to use UK-adopted International Accounting Standards (IAS) instead of EU-adopted IAS when preparing annual accounts for financial years starting on or after January 1st 2021. Beware that UK companies also need a UK-registered audit firm to sign any audit reports on their behalf.
Since EU legislation no longer applies, British legal firms need to adhere to specific laws in whatever member state they conduct business. So if you have clients that operate in an EU state, advise them to check that country’s legislation to make sure they comply.
Financial institutions like banks or insurance firms must also follow specific disclosure and transparency rules. These rules are issued by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
UK businesses now have to apply VAT when trading with EU countries, just as with non-EU members, and may also need to register for VAT in the EU country they sell to. HMRC automatically enrolled VAT registered companies already trading with Europe. Firms below the VAT threshold must apply online.
The UK also withdrew its VAT Mini One Stop Shop (VAT MOSS) scheme. This means that businesses providing digital services to the EU must declare sales and pay VAT to the country they deal with. These companies can still use VAT MOSS as long as they register for it in each EU country they sell services.
Companies VAT-registered in the UK can use postponed accounting for imports from both the EU and non-EU countries. This way, they won’t pay import VAT when their goods arrive in Great Britain, but instead account for it on their VAT return.
VAT for Northern Ireland
The rules are a little different for Northern Ireland. Its border with the EU remains open, so companies importing goods from there into Great Britain must pay import VAT to the UK. If your clients export goods from Great Britain to Northern Ireland, they must pay import tax to the EU. However, they can defer that VAT via postponed accounting. Trading between the European Union and Northern Ireland still follows current EU procedures.
What does Brexit mean for accountants?
Since Brexit, UK-qualified accountants’ credentials are no longer automatically recognised by EU countries. Member states like Denmark, France and Greece require British accountants to take an ‘economic needs’ test to work with or in their country.
However, EU countries such as Germany, Italy and Spain still accept UK professional accountancy qualifications without any restrictions. Make sure you check what each country demands before doing business there.
As an accountant, you will mostly feel the effects of Brexit through your clients. Businesses may relocate, customs checks may interrupt their supply chains, and free movement changes might leave them without the talent they need.
You’re likely the first call for many business owners seeking advice during challenging times. As such, you may have already experienced the Brexit trade deal’s impact on the level of inquiries you receive. To stay on top of the accounting trends and topics you need to know, Countingup has a resource hub created specifically for accountants.
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