As you may have seen and know, Soukup, Bush and Associates is an independent member of an international organization of over 300 firms called CPA Associates International. Our independent member firm in Great Britain is one of the leading accounting firms in Great Britain and have shared with us their viewpoints regarding Brexit. We thought that you would find their comments interesting as they are sitting at the epicenter of this historic event.
Brexit - Implications for Small and Medium Sized Entities
June 28th, 2016 by Fiona Hotston Moore - Partner
The repercussions of the marginal Brexit vote are quickly unfolding: the political environment is febrile and the financial markets are nervous and volatile.
The result was a shock to the City, markets and even the UK media who had already stocked the newsagents' shelves on Friday morning with a "Remain" edition of the daily papers.
The shock to the markets has already resulted in a tumble in both the UK and wider global stock markets, as well as in the pound.
Our politicians are also reeling with the resignation of the Prime Minister and dozens of members of the shadow cabinet.
Scotland has indicated it may attempt to veto the vote and Ireland is also making noises about its own future.
There can be no doubt that we face a challenge with a few months of volatile markets and political uncertainty.
However in practical terms, nothing changes immediately. It does seem inevitable that we will be giving notice of our intention to exit and there will then be two years to renegotiate our exit terms and fresh trade agreements within both the EU and wider global markets. Nevertheless in the short term there will be no changes to the movement of goods and trading services, the movement of people including the labour market, no changes to our laws and regulations or our taxes.
Therefore we recommend clients to not take any immediate actions and instead take the opportunity to consider strategically what are the longer term threats and opportunities which will arise from the UK exit from the EU.
We anticipate larger players in the financial services industry will make changes quicker as for such industries it is critical to have a significant presence and fall within EU regulations. There may therefore be a knock on impact for those who supply these financial services businesses.
For small and medium sized entities the areas to be considered over the next few months include:
Will there be an impact on your workforce both in terms of the supply and labour and the cost of labour.
Businesses using significant numbers of non UK workers are likely to see an increase in wages costs and the benefits system applied to non UK workers. Visa changes may also impact UK workers travelling to the rest of the EU and beyond.
Another area of concern for UK business is the impact of our exit on inward investment into the UK. Historically the UK is often seen as a destination of choice for non UK investors dipping their toes into Europe for example from the USA and the Far East. It seems likely that at least in the short term there will be an impact on global investors who may first consider other EU destinations.
Initially the falling pound may well make our UK exports cheaper and we may see a short term boost to exports. However the longer term position will depend on the successful negotiation of trade agreements. UK businesses will need to watch how these negotiations develop and in the meantime continue to focus in exploring new opportunities and building new relationships.
In respect of our legal framework and the result of our membership of the EU, much of our framework and regulations are entwined with EU regulation. Post exit we are likely to see changes to this including contractual arrangements, competition law, litigation processes and enforcement, property law and employment legislation.
In terms of our audit and accounting regime we may also see changes in the longer term. Currently our adoption of International Financial Reporting Standards depends on EU endorsement. Such endorsement will no longer be required so earlier adoption and standardization with International Standards could be seen.
Historically audit thresholds have been linked to the EU, but our government is committed to de-regulation so at an extreme we could adopt the US model with audits mandatory only if the entity is listed.
Our taxes may also change. George Osborne predicted tax rises and spending cuts post Brexit. However he may not even remain Chancellor. Will the government seek to radically simplify tax as it has mentioned on numerous occasions, or will we see enhanced tax incentives to attract overseas investors back to the UK?
In conclusion, it is important that SMEs do not take any kneejerk reactions but focus on maintaining strong financial controls, credit control and cash management whilst starting to explore the longer term implications of the exit.
We hope this brief overview helps you understand some of the implications of the Brexit. If you have any questions regarding this newsletter, please do not hesitate to give us a call.