With Brexit unresolved and a majority government, accountants can expect a turbulent year ahead with IR35 rules for the private sector, loan charge concerns and the extension of Making Tax Digital, while auditors faces cataclysmic changes which could reshape the profession. Sara White gauges the views of industry experts
John Cullinane, tax policy director, Chartered Institute of Taxation (CIOT)
With a new majority government, a concern is that we go back to the amount of tax legislation there was the last time a government had a majority.
The amount of tax legislation has more than doubled in the last 20 years and it’s not well thought out. The last couple of years there’s been no majority in parliament so they couldn’t get anything done.
When there’s been a majority, they have endlessly tinkered without dealing with the fundamental issues. We’ve still got the self employed versus employed issue, IR35, and they encouraged people to incorporate. So, will we go back to the bad old days?
Philip Hammond [former chancellor] did agree to go down to one Budget a year, one major fiscal event, but will the current chancellor stick to one Budget? The Treasury is clogged up, always preparing for a major fiscal event.
The coming February Budget will be the Budget for 2019 effectively, then maybe there will be a 2020 Budget in the autumn.
Brexit may take their mind off tinkering. We have a whole new radical government so they might be tempted to do more things without consultation.’
There are some specific issues too which need to be dealt with such as the IR35 off payroll rules for the private sector. I think there’s just been so much uncertainty around Brexit and the hung parliament that people are disincentivised to prepare for it [IR35].
Even now people might think that the new government might delay it, but they have the triple lock on taxes and need to increase tax take to cover investments.
Making Tax Digital (MTD) is another area to watch. MTD for Income Tax went off the agenda because of the hung parliament but it is a key part of HMRC’s strategy to digitise.
The problem with MTD for VAT was that it was rushed out and there was too little digesting of the pilot. HMRC needs to learn from that, they need to run a pilot on a more measured basis and produce something very good so people will want to use it and they should not be going for mandation.
The Revenue justifies MTD as it corrects errors, but mainly they get their evidence for errors when they do an investigation into a business and they usually focus on business versus personal expenses. Do you really need to use digitisation to sort out errors?
For small business expenses, it is all about the proportion of personal use versus business use. Is it really going to make a difference whether you do the reporting digitally or paper-based, how would it resolve the errors? Surely it would be better to nudge taxpayers instead; after all, errors do include differences of opinion.
Another area is the loan charge. People affected by the loan charge, who have not reached settlement, have been told by HMRC to put the full amount of the loan charge on their self assessment returns and that they will be able to amend it later, but that will immediately lead to a demand from HMRC.
There is a bit of an issue here as the new government might take time to review the Amyas Morse findings, but this is pressing. At least if the government came to a resolution they could get behind this and deal with it. I’ve always been sceptical that there’s a legislative fix as it is difficult to come to a view about who needs to be supported.
Paul Eagland, managing partner, BDO
With the publication of the Brydon report we can expect 2020 to be a determinative year for audit as this is the final report pulling the whole thing together – we are getting to the end of all the thinking and all the reports.
I believe that 2020 will be the year that the accounting and audit profession will help to restore public trust. We are up to that as a profession.
I think there will be quite a balanced approach between the regulator, the auditors and management, but I do want to see board management take more responsibility. It will be clear what auditors’ expectations are and this would require a change to the Companies Act  or greater powers for the regulator.
Currently the Financial Reporting Council (FRC) only has powers over chartered accountants. We’ve always argued that the organisation that is being audited should take more responsibility.
There is also a link in my mind to Brexit. I absolutely believe that Brexit is settled for good or for bad with the outcome of the election, and you will see investors starting to invest at a higher rate.
Companies will see Brexit as an opportunity, especially the mid-market entrepreneurial businesses which are a very spirited part of the market, and there will be a lot of activity fuelled by private equity money.
The challenge is how we make sure government and the regulator balance the regulation. If the government wants to promote the UK as one of the key global capital markets, then it is important that changes to audit do not start to suffocate business and growth.
You don’t want regulation to be so tight that it affects the capital markets; it is a real dilemma with Brexit. The regulatory changes need to be pushed through while keeping the capital markets open to investment and not suffocating UK business.
What I wouldn’t like to see is that any changes to audit for the 2,500 largest public interest entities are dropped down to businesses outside the estimated 200,000 larger businesses that generally require an audit. Here the profile is completely different. There should be some level of stratification.
Away from regulation, automation will continue to be a major issue with further investment in technology and automating processes. The government should introduce more effective R&D (research and development) credits to encourage investment in automation.
People talk about automation and that it is easy, but it is not. You need to have standardisation and harmonisation of processes to make it work.
Thinking about tax, I hope the government reconsiders changes to entrepreneurs’ relief; it doesn’t make sense. The UK is recognised around the world as a brilliant business environment which encourages startups and businesses, and entrepreneurs’ relief is an important relief, stimulating business, equally as private equity really fuels business.
Yvette Nunn, owner and partner, Berkeley & Co
Certainty is the main thing businesses need in 2020 and we’ve still not got any certainty even after the election. There is still so much uncertainty about Brexit and it does not help when planned tax laws are changed at the last minute - the 17% corporation tax rate was coming in from April and businesses had been preparing for that, then suddenly it wasn’t happening.
If a business had planned investments around 17%, depending on what their profits are and how they were planning to make the repayments on borrowing, then they would have budgeted for this, now the profit forecast is dented. Britain plc really needs some help.
I am also concerned about the review of entrepreneurs’ relief, that is so wrong. The government looks at the tax relief and says it doesn’t promote investment, but they don’t seem to realise that it promotes risk.
Now the banks are not lending, even where companies have not defaulted, so cash is king. And people are putting their own money into businesses and taking all the risk. If they cut entrepreneurs’ relief, what’s next? R&D restrictions are already coming in.
The tax code is so complicated but there’s little sign of that changing.
Take EMIs (enterprise management incentives), they were brought in to reward employees for investing in businesses and to incentivise staff to invest in the company, particularly start-ups and high tech innovators. But the problem is that this reduces payroll, and as a result their NICs’ bill is too low, as R&D relief is capped.
The government needs to look at the way all these reliefs interact as it is not working. We need more joined up thinking on tax policy.
The off-payroll working rules for the private sector are another problem, going forward a lot of businesses are not going to have the time or resources to check the status of all their contractors so they are just going to put them on the payroll.
I just don’t feel there is enough awareness, and it’s not just about the changes to IR35. It is across the board on taxes. There are a lot of people who just don’t have the money to invest in advice, and it is more luck than judgment that they get their taxes right.
The next Budget needs to be carefully thought through. What I do ask is if they announce taxes for the next tax year, as they do in advance, then they don’t go back on it. Also it shouldn’t be a giveaway Budget, it should be a Budget for Britain plc, for the future of Britain and for business.
Britain needs a very long period of certainty and we can’t hope to get it until we get past Brexit. Businesses are not investing because of Brexit and customers are holding off on new orders.
And on Brexit, I don’t think Britain should expect to get a trade deal so quickly. The EU has been very patient with us considering how much we have changed our mind on the withdrawal deal and the fact that we’re leaving.
Jonathan Amponsah, CEO, The Tax Guys
IR35 and income tax is a major concern for 2020. I have seen clients come to me where they have just not got enough awareness of this. Nothing has really changed in terms of employment status but there are widespread concerns. Many clients are at the mercy of banks – they have been told they will be put on the payroll, and the banks will put them on without doing any tests.
If you are really freelance they can’t get the end user to review it. The obligation is for the company to do the test and give the staff member the assessment, and why they think the person should go on the payroll. A lot of contractors are going to accept it, but they can challenge the contract. My concern is that the government is just trying to raise more taxes.
On the loan charge, the Revenue has been quite successful in getting people to settle. I don’t believe anything will come out of the Amyas Morse review; what are they going do any with all those that have already settled? It is a complex situation but there is no point people thinking that they might get away with not paying the taxes.
I am also concerned about increasing powers for HMRC; with a lot of taxpayers if they see the type of letters HMRC is sending, and even if they have a good case, they don’t have the nerve to go to tribunal and dispute the issue.
With the new government, if you are going to spend and spend, then why would you give these taxes back. All the parties have tax avoidance on their radar, and the government clearly wants to close any loopholes.
Making Tax Digital is going to be pushed through in 2020, but it has to be better than the MTD for VAT rollout. HMRC is going to push hard to extend digital reporting but they really need to get their act together and improve the overall experience for taxpayers and businesses.
HMRC was not prepared at all for Making Tax Digital and a lot of firms have worked as civil servants for HMRC – a lot of time and effort was spent dealing with the systems and trying to report correctly.
In terms of digitisation, VAT was on a small scale. I think they should roll out MTD for business starting with big companies. If they just roll it out on a pilot scheme, then realistically it will take three to four years. My prediction is that they are going to go for it in 2021.
If the [new] government is going to spend, spend, spend, then why not get on with digitisation. If I was them I wouldn’t introduce another tax.
On Brexit, my own personal view is that they should get on with it. It should be a sensible exit as this uncertainty is not helping businesses and the rules should be aligned with Europe wherever possible - we don’t have the resources to change all the regulation.
Gary Ashford, partner and head of tax, Harbottle & Lewis
One of the big areas I suspect is that we will get some clarity around digital taxation in 2020. Meetings are taking place and the US has said that [the OECD’s] pillar one proposals could be a safe harbour, which it could be.
The OECD wants to get some clarity in 2020 and the US has pitched in but they have massive concerns over the nexus principle and watering down the arm’s length principle. You have to assume that the OECD wants to get something agreed in the first quarter of 2020. It just feels that this is the opening gambit.
What is the alternative to this - a huge amount of unilateral action? That is clearly one of the things that is crystal and that would not be a solution.
In the UK, there is the plan for a digital services tax but it is not clear how this will work out. There is the perceived relationship between the present incumbent in the US administration and the UK government. If the UK pushes ahead with the digital services tax, the US is probably going to ask it not to.
The UK should try to find a solution with the OECD. There is quite a significant potential fallout from that either way as well as the risk of a potential carve-out from the OECD.
Whether it is the OECD’s proposal or digital services tax, if you look at the direction of travel, most companies are moving towards a more digital position so this issue is going to become even more important.
The election result gives the Conservatives a very strong mandate. I think they will push forward with some of the things they are proposing - there’s a lot around entrepreneurs and with Brexit, the government is going to try to make the UK a very attractive place to do business. I would expect to see a whole bunch of measures to support entrepreneurs.
R&D relief will be made more effective and even if they were to scrap entrepreneurs’ relief, it would be replaced by something else. But I would like to understand from a policy perspective why they feel the need to scrap it. It may be the anti avoidance aspect, an attempt to drive out contrived measures.
DAC 6, the EU tax disclosure rules, are coming in 2020 and whatever version is put in by non-EU countries, there will be a lack of consistency. No-one has the same anti avoidance measures and it will be a challenge.
HMRC has said it will effectively adopt DAC 6 and it is already enabled in Finance Bill 2019. It is important to appreciate that the UK has been a driving force in exchange of [tax] transparency. The UK position at the OECD table is important; they would not want to lose their position and influence.
When we get back from the Christmas break it is going to be full steam ahead with exiting the EU. The government are going to want that all to land successfully and then there will a Budget with measures to support growth.
Ben Chaplin, CEO, Croner-i and Croner Taxwise
One of the big challenges is the changing landscape – I think the Big Four are going to get challenged and there are several drivers for it. There could be a Big Six or a Big Eight again… I am quite serious about that.
The governing bodies are taking issue with the lack of choice and competition and a lot of people are raising their eyebrows at the consolidated Big Four, and know that some of them are trying to target businesses that they haven’t before, particularly the medium sized businesses in the SME market.
Then you have those firms outside the Big Four who are eyeing up opportunities as larger businesses are looking at alternatives.
There is a great deal of consolidation in the market. Take Cogital Group – here you’ve got a lot of firms coming together and beginning to snap at the heels of the Big Four. There’s also lots of change across the market with firms being sold off as senior partners and owners look to retire.
It’s always interesting with mergers and acquisitions (M&A); they either go wrong or they take two years. M&As are tough as there are a lot of things to sort out with different systems and cultures.
We were very lucky when we bought the Croner Group, that took two years and for those two years it was very hard work. It was an unloved business with the remnants of a great name, but now it is a great business and we are glad we have brought so many people with us on the journey.
Then obviously there was the Croner-i acquisition which was not without its challenges as a trade and assets sale. We’ve invested heavily – with M&A you’ve got to be prepared to invest in the business, and not just money, but blood, sweat and tears. It is incredibly hard work. A lot of things need to play out to get the benefit of two plus two equals five, which we all aim for.
With any M&A, all the systems are a challenge and it’s not only finance, it’s sales and marketing, content, fulfilment, governance, and IT. We all want more analysis, more detail, and this requires investment in everything from finance systems to IT delivery, sales to CRM, the list goes on.
But it pays off and in 2020 there will be major changes in our delivery systems, with significant investment in our flagship information platform for tax, audit and accounting - Croner-i online - and Accountancy Daily, as well as across the rest of our HHC portfolio, including HR and health and safety.
We’re very excited about it and the investment is ongoing; you have to continue investing all the time.
Andrew Harding, chief executive of management accounting, Chartered Institute of Management Accountants (CIMA)
Regulation, skills and automation are the three big things for 2020.
We are all waiting to see what happens with audit – there is going to be a new regulator replacing the Financial Reporting Council (FRC), and they already have a new chairman [Simon Dingemans] and new CEO [Jon Thompson]. Everything is ripe for change. It’s an opportunity to make a step change. The old FRC was hobbled by the way it was set up.
We’re looking forward to seeing a regulator with powers to influence change.
What is really important to understand is that the Thomas Cook and Carillion failures were not caused by the auditors; it was the accounting that went wrong
We would like to see more emphasis on the finance function – regulation has been driven by concerns about the audit market, but the reality is that a robust finance function has to be in place with good governance and an understanding of how accounting policies are used and to ensure that they are transparent. While auditing is the driver for change, it is not the only important issue.
What is really important to understand is that the Thomas Cook and Carillion failures were not caused by the auditors; it was the accounting that went wrong.
When it comes to reporting, there needs to be a solid understanding of financial reporting, but we would also like to see the strategic report aligned with integrated reporting.
This brings me to the skills issue. The estimated average lifetime use of a skill is four years. The concern is that the vast majority of professional accountants are qualified and they think they are skilled for life but the idea that you have a 40-year promise has gone. You have to really keep trying to keep ahead of the game; you have to make sure you’re relevant to your clients.
We’re taking a long, hard look at the shape of professional learning. There needs to be more engagement from finance professionals – we’ve seen pockets of recognition, but we see others that really need to raise their game and their professionalism.
Technology and digitisation are the major change factors. Spreadsheets are fast becoming yesterday’s technology. There are still organisations that have hundreds of people who move stuff between spreadsheets. With digitisation you can complete the month end reporting in two days instead of a month.
It’s an opportunity for accountants and also a risk. For those that want to impact the business and add value, this will give them the time to do this. It is a risk for those who think their jobs will never change.
It is easier to look at the risks in terms of demographics – those at most risk are the mid-career professionals, those qualified between 10 and 25 years, who still have a 15 to 20 year career to enjoy.
Their need to re-skill is absolutely vital; they need to get a good understanding of the digital world. They don’t have to be coders but they need to understand what digitisation can do for their business. When you think about the pervasive use of spreadsheets, some of that dependence is due to the technical adoption curve.
In terms of digitisation, you have a lot of early adopters – the 10% – but 90% are lagging because their people don’t have the skills.
This is a problem that is becoming more acute. The leading group is getting smaller and it is beginning to break away. Too many businesses are not using the latest technology; they need to adapt fast to remain competitive. Millennials are intuitive users of technology, they think digital first. But the traditional university education is not placed to keep up with that.
Reporting by Sara White, Editor, Accountancy Daily