The effects of Brexit on outsourced accountancy – are you ready?

The effects of Brexit on outsourced accountancy – are you ready?

As 31 October looms, there are regulatory changes set to affect accountants across the UK and EU who are utilising cross-border outsourcing.

The effects of Brexit on outsourced accountancy – are you ready?

When the United Kingdom leaves the European Union, things will be chaotic across the board. For those in financial professions, the added layer of responsibility may present challenges, particularly for those who use outsourcing within the EU.

As outsourcing has become an accepted, financially-viable option to the traditional single-office workforce, accountants need to know the changes that will be taking place to their offices – both in the UK and abroad – in the coming months.

Toby Stanbrook, head of accounting and outsourcing at Mazars, said that the shift to software-driven accounting allows businesses to tailor their processes, taking advantage of the cloud to share data across offices.

“As the cloud becomes more pervasive and AI more powerful, I feel that it is inevitable for firms to outsource more of their non-core functions,” Stanbrook said, noting that speed of technological development helps spur this.

However, as many firms outsource within the EU, if Brexit happens under a ‘No Deal’ scenario, UK-based firms will find themselves unable to offer certain services.

No matter what deal is reached, EU data protection laws will continue to protect those services in the meantime – provided that the contract was signed with a UK company, according to Amit Agarwal, managing director at Outbooks.

“With the mushrooming of offshoring centres with no presence in the UK, it’s definitely a risk that accountants must consider,” Agarwal said.

For those who have signed with non-UK companies, GDPR will protect them until Brexit takes place; however, the UK government has advised all companies to check their contracts to determine whether those contracts will be valid once Brexit happens.

Until the EU grants the UK adequacy status – meaning that the EU believes the UK is a safe place for data processing to take place, lifting restrictions on data transfers – the UK will operate as a ‘third country.’ It is important to remember that previous agreements will not necessarily constitute an agreement post-Brexit.

Bringing outsourcing back home

After Brexit, some professionals expect to see previously outsourced services return to the UK. There may be a break in front-to-back processes, Capco said, but firms need to keep a neutral point of view while they restructure their outsourcing models.

Agarwal said: “Outsourcing, essentially, is acceptance of the fact that some work can be done by a third-party organisation better, faster and cheaper, that allows the customer to focus on some more complicated and value-added tasks which the customer excels at.

“On the face of it, it may look as if outsourcing is exporting jobs to countries like India, but the fact is, it is not only saving jobs in the UK, but also creating tons of new jobs.”

In the short-term, accountancy firms can scale back their offshore outsourcing and focus on UK-only outsourcing. While using UK-based talent is not always as cost-effective as using offshore talent in the EU, it is a viable option for firms that are wary of Brexit’s potential effects.

Brexit will not directly affect UK-India or UK-US outsourcing, so outsourcing through those countries may offer uninterrupted service both pre- and post-Brexit. However, as Nicky Goringe Larkin of Goringe Accountants noted, it is important for firms to stay focused and calm – whether they stick with EU outsourcing or not.

“With any type of change, some people are going to be extremely scared,” Goringe Larkin said. “We just have to – whatever the outcome – we’ve just got to try and embrace it and be prepared and move forward.”

Changes to VAT and taxes

UK tax laws and VAT were fluctuating before Brexit and will continue to change in a post-Brexit setting. In the coming months, outsourced accountants will have to keep up with ever-changing regulations, separating complicated UK and EU measures.

If a ‘no deal’ Brexit happens, the Financial Conduct Authority (FCA) will become the regulator of credit rating agencies (CRA) in the UK, meaning that all CRAs must be certified with FCA if they wish to provide credit ratings.

Unfortunately, with talks continuing up until – and potentially past – October, regulations are still prone to change with little notice for both the provider and the customer.

You may need to reassess the regulatory permissions for the local EEA you operate in, particularly if you engage in ‘passporting’—that is, operating in other EEA states as well as in the UK. Once the UK’s EEA status is stripped, the offering of international services will be extremely limited for UK-based firms.

As these changes may take place with little notice, it is important to have an open line of communication between the UK firm and its outsourced offices.

In turn, this allows for a more informed line of communication between accountants and the businesses they work for.

“Although accounting and tax technology is great in helping businesses and outsourcers identify issues, it won’t yet provide all of the solutions – that will be down to human interaction and intuition,” Stanbrook said.

As Brexit draws nearer, accountants should open these lines of communication and talk openly with clients about the realities of a no-deal Brexit before it occurs.

For in-depth information about outsourcing and how it could benefit your business, check out Accountancy Age’s feature here.

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