In Q1 Rutherford Cross hosted its latest virtual Tax Forum in conjunction with RSM. Ross Stupart (Corporate Tax Partner) and Ian Brown (Associate Director – VAT) led the discussion with our attendees, all tax professionals in industry or finance professionals from a range of different industries to include drinks, energy, higher education, pharmaceuticals, financial services, FMCG and manufacturing.
As well as an engaging agenda, the discussion was supported with a live poll throughout the session with selected questions. Brexit was to feature most heavily throughout the session.
Poll 1 – What is your assessment of the practical impact of Brexit on your business from 1st January 2021 compared with what you expecting / anticipating?
- No material difference – we have continued to service EU/UK customers without significant interruption, and it is largely as expected – 33%
- Some difference – we have seen some impact in our supply chain, and/or have had some difficulties with import/export declarations – 67%
- Significant negative difference – we have seen a significant impact on our ability to service our customers since 1 January 2021 that we had not expected, and to the detriment of our business – 0%
- Significant positive difference – our ability to service our customers since 1 January 2021 has vastly improved as a result of the processes in place – 0%
It was expected that responses would be a mix of the top three – depending on sector. Our participants had experienced difficulties with supply chain and import / export recently. The biggest impact comes from the physical movement across borders on a day-to-day practical level.
Import / Export
Import and export requires people getting involved in issues they might not have considered before, such as how does a product actually get out the door?. Ian, from RSM pointed out that physical movement is everything to his clients – how is it logged, who keeps an eye on the product, who manages the process – it is imperative to understand your own internal processes before goods leave the building. Getting the right information from the right people and providing to those who need it is so important. Information that was not previously required needs to be obtained, and it is a learning curve. Some of our participant had appointed customs agents as tax teams are not going to be able to do all customs declarations in addition to existing workload.
Specialist software is required – HMRC advice using a customs agent but for many organisations it is not always clear when you should bring this in house or keep outsourced. If using customs agent, you need to ensure they know exactly what data is required as the liability still sits with the business.
Our participants had lots of examples where goods had been stuck – and there have been frantic calls to use tax expertise to get goods moving along, of course an expected initial teething problem. Once the businesses had their processes and paperwork in place, issues have calmed down a little.
Ross has noticed that some of his clients have worked hard to understand technical requirements, but when logistical staff had not followed protocol, the businesses needed to find work arounds to ensure goods are transported. Supply chain routes have had to change in some cases, to ensure goods are shipped and delivered to the right locations.
There have also been a lot of significant indirect tax compliance costs. Ian has taken time to understand what clients and logistics firms really need to try to reach a manageable solution for the business rather than incurring significant costs which are un-manageable.
There have been challenges in Northern Ireland in particular – more difficulty with EU based suppliers who are less engaged with UK suppliers. EU suppliers have often looked to take a blanket approach, but it is not always possible.
The food and drink sectors have been massively impacted by labelling issues – Ross has seen companies set up European subsidiaries to address these issues.
The Tax Function
The consensus was that because of all of these issues – tax, as a function now has a higher profile within the business. Our participants have found that they are liaising with stakeholders across the business that they would not have interacted with before.
Poll 2 – What is your expectation on the timescales for the impact of Brexit to be fully known/understood and for your business to be operating effectively?
- It has been done – we have been through the changes which impact our business and have all required changes to processes in place – 25%
- Nearly there (within next 3-6 months) – we fully understand the changes which we need to make but still need to finalise implementation, such as finalising EU VAT registrations or logistics arrangements – 63%
- Still some way to go (within next 6-12 months) – we have recently begun our implementation of changes and/or we are still expecting further changes which will impact our business in the near future – 0%
- This will be ongoing for the foreseeable future (more than 12 months) – we expect there to be continuous changes beyond this year which will impact our business and require us to update our processes – 12%
In the next 3-6 months we will start to see the longer-term issues and impacts, there will be new stages in place. Changes are expected on the regulatory side, perhaps also as the trade deals adapt.
Some businesses have experienced a soft landing as trade has been down due to the ongoing impact of the pandemic, however, as volumes start to increase as business gradually returns o pre COVID levels of activity, the procedures in place might not be sufficient – and companies need to address this.
Poll 3 – The increase in corporation tax rate to 25% from 1 April 2023, what impact do you think that will have on your business?
- No material difference – likely to stick with things as they are – 75%
- Some difference – we may see our business reconsider some routine parts of its supply chain and operations – 13%
- Significant difference – we may see some key value driving functions move from the UK – 0%
- Too early to tell and may depend on other countries tax policy changes in response to their Covid bill – 13%
The ETR in the UK will be double the Irish rate, and in the coming weeks / months, CFOs / executive level finance professionals will need more commentary on what the 3-5 year forecast will look like.
The rate jump in the financial services space could have a big impact according to some participants. Before the budget, our financial services participants had to set up models to predict what the impact of a tax rate increase would look like.
Some businesses have claimed furlough, realised they have performed well during the pandemic, and paid the money back. We heard that businesses coming out of a series of mergers and being very focused on commercial strategy – something tax has not been a part of, and in these circumstances, tax will fall in behind and need to catch up post acquisition. However, generally, tax there to optimise commercials, not drive them and our participants generally felt they had a strong and active role to play within their organisations in that regard.
Looking Ahead – Changes and Transparency
Since before the pandemic, the need for an inhouse tax function has changed. There has been an increased need for transparency and the focus is now much more on risk management and strong governance.
Ross felt that 10 plus years ago there could have been a different reaction to a significant tax rate increase. However, we now operate in a world where there is a greater demand for transparency, as well as demand from other stakeholders of businesses (e.g. customers, shareholders etc) that companies pay their fair share of taxes.
Please Join Us
Our last poll asked the question as to whether our attendees found this session useful, and thankfully, everyone did. We will therefore be continuing to run this forum quarterly in 2021. To find out more about this event, or to discuss your tax recruitment needs, please contact [email protected].