Award-winning Manchester-based chartered accountants, Hurst, share their advice on the most pressing issues facing businesses today. From the implications of leaving the EU and COVID 19 to strategies for success in 2021.
Helen Besant-Roberts, Business Services Partner & Lead for Hurst, with over 25 years’ experience in practise, Chartered Accountant details the key matters Hurst and clients have been discussing. Outlining current challenges and concerns, Helen and Hurst provide achievable solutions and specific information which many businesses stand to benefit from.
One of the most enjoyable aspects of my role as a Partner at HURST is supporting my clients and helping them achieve their strategic goals. However, as anyone will attest, 2020 was a year unlike any other for businesses and many of the conversations I was having throughout 2020 centred on the impact of Covid. One year on, businesses have largely tackled the immediate issues and the conversations have moved on to ‘what’s next’. The challenges facing businesses in 2021 are not the same as those we all faced in 2020, so what am I talking to my clients about now?
The practical implications of leaving the EU
Following years of anticipation, the UK has finally left the EU and we are now starting to experience the practical rather than the theoretical impacts of Brexit.
Whilst the country may have breathed a collective sigh of relief when it appeared that a deal had been struck for ‘tariff-free trade’, the reality is far from straight-forward. Tariff-free trade may exist where a business can demonstrate that goods are of UK or EU origin. However, the definition of ‘origin’ is complicated, and goods being brought into the UK from outside Europe and then exported to Europe do not necessarily meet the definition, meaning tariffs become payable.
Other Brexit-related challenges highlighted by our clients include the impact on cash-flows of additional stock requirements and increased supply costs.
Some businesses are facing nervousness from European customers seeking assurances that their supply-chain is secure. Customs declarations are now required, and some carriers have struggled to get systems and paperwork in place which has caused delays in goods reaching their destination, further fuelling concerns.
Digital commerce, which saw exponential growth in 2020 as a result of Covid-19, is also impacted following the changes to import VAT rules for e-commerce from 1 January.
Notwithstanding the challenges facing many businesses, the new environment has brought some welcome opportunities as well. Whereas import VAT used to have to be paid before goods could be imported, UK businesses now automatically qualify for the postponement of VAT on imports. This creates a significant cash-flow benefit for many of our clients.
Additionally, the rates of customs duties have decreased in respect of some goods, generating an actual cost saving which can either be passed on as price savings to end users or help increase profitability for reinvestment into the business.
The EU’s planned expansion of its VAT ‘One-Stop-Shop’ to goods as well as services from 1 July 2021 is also a welcome development as it will simplify exports to the EU.
Recruitment and new immigration rules are causing headaches for some. Businesses can no longer rely on EU recruitment to fill low-skilled and mid-level occupations, whilst those recruiting skilled workers face more onerous requirements and greater expense. Retention of existing workers is more important than ever.
The new environment has come as a bit of a shock to some companies; hence they are urgently seeking solutions. Solutions we are currently helping clients with include:
- Reviewing tariff classifications for imported products to ensure they are the correct ones and to check whether there are more appropriate codes for existing or new products. Some duties have come down since Brexit. This enables companies to understand the actual duty costs of imports.
- Applying for Inward Processing Relief to legitimately defer or even cancel UK import duties on goods which are subject to sufficient levels of processing here before being exported onwards.
- Establishing customs warehouses which can be a physical or virtual solution and involves placing goods in a warehouse pending onward export.
- Setting up ventures on the continent with Netherlands, Belgium, and Germany the most popular destinations. This can range from simply applying for an EU VAT registration to enable recovery of EU import VAT, through to setting up a full EU-based company to ease import processes, improve customer experience and resolve staff and supply chain issues.
- Using Online Marketplaces (OMPs) for e-commerce to reduce the administrative burden.
- Online retailers setting up establishments in other countries to develop their direct-to-consumer business, gearing up for an anticipated post-COVID bounce in consumer confidence.
For further support and information visit EU - Exit | GC Business Growth Hub
The pandemic has impacted businesses in different ways depending on the sector. We’ve seen impressive resilience amongst our client base along with typical entrepreneurial innovation. Many of our clients have successfully managed to pivot their businesses to put them in the best place to deal with the ongoing limitations. Many businesses have turned on digital channels, for example utilising e-commerce to sell goods or establishing online delivery of services. In our own business, we’ve had to swiftly move to remote delivery of our compliance and advisory services.,
Whilst I would estimate that 80% - 90% of our clients have taken advantage of the government support available, whether that be CBILs/Bounce Back loans, the furlough scheme or deferral of tax payments, many of these are now able to be relatively self-sufficient.
However, most-business owners don’t anticipate getting back to ‘normal’ until mid-2021, with some sectors clearly facing greater delays than others. The hospitality, leisure and travel sectors have been devastated and some are reporting that they are 90% down on normal levels of trade.
Manufacturers and wholesalers are generally faring better with demand back up to pre COVID-19 levels. Nevertheless, businesses are still facing significant difficulties such as:
- Meeting delivery targets
- Travel/quarantine issues impacting on sales activity and delivery of some services
- Inability to plan ahead
- Skills drain as people leave the worst affected sectors
- Infrastructure to meet the increased digital demand
- Looking after people
Staff engagement and mental wellbeing
One topic which seems to unite most businesses at present is staff engagement and mental wellbeing.
Working from home, long-term furlough and social isolation are starting to take their toll, and our clients are reporting numerous issues including:
- Poor staff engagement and motivation
- The impact of lockdown on mental health
- An inability to ‘switch off’ whilst working from home
- Balancing the challenge of home-schooling with work demands
- Communication issues
- An inability to effectively train and develop staff
- Loss of control or transparency
- ‘Zoom fatigue’
Coming up with ways to keep staff engaged, motivated, and healthy is a constant challenge and some businesses are dealing with this better than others. Many people are experiencing high levels of stress, anxiety and burnout in the work environment and it is vital that employers are aware of the issues and take appropriate action through connecting and communicating with their employees.
Strategies for success in 2021
We don’t have a crystal ball and we can’t predict what is going to happen in 2021. However, we can put in place effective strategies to enable us to deal with the challenges that we are facing at the moment and also enable us to react to circumstances as they unfold. It may seem impossible to plan ahead but there are things that can be done:
- Consider your route out of lockdown. When and how are you going to respond to changes to the restrictions?
- Put contingency plans in place to account for changing circumstances.
- Build long-term resilience.
- Put a digital strategy in place if you haven’t already done so.
- Consider how you are going to unleash demand when restrictions start to lift.
- Ensure regular and effective communication with all your stakeholders including staff, customers and suppliers.
- Be prepared for future tax changes as the government looks to recoup some of its substantial spending.
- Use the government support available.
- Keep an adequate cash-reserve.
- Take advice from your professional advisers.
Despite the trials and tribulations of the last 12 months, there are reasons to be optimistic about the future. At a recent HURST seminar, we were joined by Martin Vander Weyer, business editor of The Spectator magazine and author. He predicted a fast recovery for the UK economy, resulting from the vaccination programme, and said there were exciting prospects for the second half of 2021. He believes the latter part of the year will be a good time for business expansion due to cheap workspace, a positive approach from the banks, and cash-rich private investors keen to support businesses.
There is a huge amount of pent-up demand waiting to be exploited and, if ever there were a time, that time is now.
Further detail on the topics above can be found on Hurst’s website. Greater Manchester businesses can also sign up for free to attend our events and access other resources.