So far, British accounting associations have shied away from the Brexit debate, preferring to remain neutral on the crucial referendum question - although a poll carried out last summer indicated that over 75% of CIMA members said they wanted the UK to remain in the EU[1]. In reality, the share of revenue generated by clients in other EU countries within the accountancy sector is just 4.2%[2]. The impact is more likely to come as clients themselves are affected by the Brexit.
Last month we saw the EC present its VAT action plan, which brought to the fore two topics that are particularly sensitive in the UK at present – tax avoidance and EU control. The main controversy that is likely to emerge from the plan is its aim to further integrate European tax authorities.
Tax is currently forming the core of the In/Out debate for finance professionals. The question is how will the tax environment change in the UK if we leave the EU? And will it even remain stable even if we vote to stay? It seems that regardless of the outcome of June’s vote, tax policies in the UK will remain uncertain.
If there is a Brexit, Britain would regain its right to vary its VAT as EU laws on direct and indirect taxation would cease to apply in the UK. Britain would also be able to increase excise duty rates beyond the current EU restrictions. Britain could request membership to the European Economic Area (EEA) or European Free Trade Association (EFTA). Membership of the former would mean the accounting directive would still be apply in the UK along with significant elements of other EU legislation. Becoming a member of the EFTA would require the UK to negotiate bilateral trade agreements with the EU which in turn could require us to adopt EU rules on tax and financial reporting.
If we stay, we can expect the EC to push for increased EU authority over the taxation policies of member states. The VAT action plan is just the start. The EU's proposed Base Erosion and Profit Shifting (BEPS) regulation and directive will see a crackdown on tax evasion from multinational corporations - hardly a policy any government could justifiably oppose given the current climate. However, it will also be important to understand the long term implications for UK businesses of greater harmonisation of EU tax practices.
The other question around Brexit of course concerns accounting standards. With organisations having to comply with the new FRS 101 and 102 standards for the first time this year, tensions are running high as to whether these will be changed again following a Brexit. It is very unlikely that we will see a retreat back to British accounting standards, regardless of whether we remain in the EU or not. The UK has always been a key advocate of the International Financial Reporting Standards (IFRS) and the Financial Reporting Standards (FRS) were specifically developed by the Financial Reporting Council (FRC) to allow for pre-existing UK legislation such as the Companies Act 2016. Certain changes in regulations might come into effect, for example the Alternative Investment Fund Managers Directive (AIFMD) will no longer apply in the UK which could lead to some modified reporting structures.
At the very heart of the Brexit debate is the uncertainty over how the EU will react. Will they be willing to negotiate deals with the UK in order to keep trading as smooth as possible? And, if so, how long will this take? Or will they make an example of the UK to prevent other member states from following in its footsteps? One thing is for certain, firms will be playing it safe at least until June, and given that the industry is only just beginning to recover from the impact of the recession, this could have a significant impact.