Being able to communicate the facts as a finance professional is important during times when an EU Referendum is imminent. We’ve put together a short 5 point piece on items to consider communicating to your clients which could impact the accounting sector.
1. Access to capital and existing funding lines could get challenging
The ringfencing of investment from retail banks in the UK as a result of a Brexit is likely in our opinion, although this is not likely to come to fruition for a few years following a Brexit vote.
However, it’s clear that banks are under more and more pressure to reduce their loan to equity ratios (that is, the amount they are allowed to borrow from the ECB to invest versus the amount of actual cash in their books).
If this continues, we could see a material shift in the access to capital from banks to alternative and non-bank lenders. Fortunately, that’s where we operate. At Trade Finance Global, we help businesses access most forms of debt finance in order to help companies expand, reduce working capital constraints, or release cash flow into the business. Access our business finance hub for accountants here!
2. Be prepared for company exits, increased M&A activity, and sellouts
As Brexit is likely to severely shock currency markets and stock prices globally in the short to medium term, many older incumbent companies may look for a quick ‘buck’ or possibly even sell-out their shares in their companies in the face of company turmoil.
It’s a good opportunity for accountancy practices to analyse the quality of their client portfolio, ensure a diverse mix of growing and older companies to protect themselves.
3. Tax implications of Brexit
The tax consequences of leaving the EU are also largely uncertain, around Brexit. It’s unlikely that the UK will come to formal corporate tax agreements until 2 years following the referendum.
Although, according to Jason Collins at Pinsent Masons, he makes a few poignant points about tax implications following a Brexit;
- Bilateral trade agreements between the UK and other European Union countries are likely to remain
- The UK could make many changes to corporation tax, and it’s likely they’ll continue to challenge tax avoidance
- Historic EU-law based tax refund claims could be abolished by the treasury
- Tax rulings are likely to remain as close as possible to current or EU law, thereby reducing the burden for SMEs to comply with different jurisdications
- VAT is likely to remain as it is, given the amount it makes for the UK treasury. Although the right for at least 15% tax on goods and 5% on certain goods Will not be compulsory (as part of the EU VAT directive).
4. International Expansion of companies
As mentioned earlier, it’s likely that companies may want to relocate, or move some of their operations to mainland Europe; in particular, US and APAC companies who structured in London as a passport to the EU.
This could be an opportunity for accountants to help their clients expand and grow as they set up their infrastructure in the EU to ensure access to this market.
5. Employment Law Changes
Changes in employment law as a result of Brexit is also likely in our opinion. Again, it’s hugely uncertain, but we know that current statutory rights for holiday, discrimination, rest periods, maternal and paternal leave could change as a result of Brexit.