In February, the prime minister unveiled a roadmap setting out a four-step plan for England’s exit from lockdown, beginning with the reopening of schools. Over the coming weeks and months, both the country and the economy should gradually open up further until all restrictions are theoretically lifted from 21 June. Separate timetables are in place for reopening the rest of the UK.
With consumer confidence boosted by the rapid vaccine rollout, businesses are preparing for what will hopefully be a major rebound in spending as people use cash reserves built up during lockdown. Assuming this rebound materialises, it should have widespread reverberations across the economy. So, what are the priorities of UK finance professionals as they look to support their organisations and their clients ahead of the reopening?
The UK Regional Advisory Panel and the Members in Practice Panel for the Association of International Certified Professional Accountants (AICPA & CIMA) explored this question in recent meetings. Their main focus areas were:
Companies that import and export goods have found the UK’s new trading arrangements with the EU to be a real headache. VAT has been a particular challenge. Businesses are very confused about the VAT rules and some have simply stopped exporting to the EU altogether. Companies that import vital components and raw materials are reporting delivery delays, which has a knock-on effect on their sales since they cannot fulfil their customers’ demands. Going forward, businesses may also struggle to source the talent they need now they can no longer recruit easily from the EU.
Changes to the IR35 off-payroll legislation are set to take effect in April 2021. These changes aim to combat tax avoidance, but they are causing a lot of concern for businesses – such as IT companies – that are heavily reliant on contractors. Some contractors are refusing to sign new contracts unless they receive written confirmation that they are operating outside of the IR35 rules. Potentially the rules have implications for finance professionals who act as consultants or provide external finance director services to businesses.
- Cash flow
While recovery appears to be in sight, the Covid-19 crisis is far from over. Many businesses are running very low on cash while they wait for the economy to reopen – particularly in sectors such as hospitality – and could struggle to cover deferred VAT bills or repay Bounce Back Loans taken out at the peak of the crisis. Some businesses are transitioning to the Coronavirus Business Interruption Loan Scheme, but the requirements of the scheme – including credit checks – can act as obstacles to securing the funding.
- Research and development relief
In March, the government launched a wide-ranging consultation on the current R&D tax relief schemes. The government sees innovation as critical to boosting the UK’s productivity and economic growth. So, it has set an ambitious target of raising total investment in research and development to 2.4% of UK GDP by 2027. R&D tax reliefs can help to incentivise this investment by reducing the costs of innovation. So, the government wants to look at opportunities to improve the current R&D relief schemes, including potentially consolidating them.
Finance professionals welcome the consultation, especially if it results in the simplification of the current rules around R&D. At present, it’s hard to understand which activities qualify for the reliefs and difficult to access funding for research. Having said that, it’s important that any incentives encourage companies to undertake their R&D activities in the UK, rather than abroad. Also, the relief should be channelled towards companies that are genuinely eligible – currently some companies are claiming the relief for activities that do not fit with the spirit of the guidance. Overall, companies need greater clarity around which activities qualify for R&D, with practical examples explaining the difference between activities that do and don’t qualify.
- New opportunities
While the pandemic has hit some businesses very badly, it has created new opportunities for others. There is huge demand for broadband, for example – although lockdown hindered providers’ ability to service this demand earlier in the year. Also, some companies have gained customers from rivals that have gone out of business. Many companies are using this time to rethink their business models – for instance, new ways of working call for transport companies to develop revised ticketing strategies since workers may no longer want annual season tickets.
While 2021 is likely to be testing for businesses, especially those that have already been heavily impacted by the pandemic, UK finance professionals appear to be broadly optimistic about the outlook for this year. They expect revenue growth and for workers to return to offices for at least some of the week. A return to offices will benefit transport providers and commercial property companies – as well as other businesses that depend on vibrant city centres. Generally, the mood is positive as businesses plan for what will hopefully be better times to come.