Technical

Technical

Cróna Clohisey gives a summary of the latest happenings in British politics, what’s next for Brexit and a look at the greater impact the exit is having on manufacturing in the UK. With the race to find a new Conservative leader (and Prime Minister) in the UK heating up, Brexit appears to have been put on the back burner – for now. The EU and UK are still planning, however, for an exit date of 31 October 2019.  In the meantime, the European Commission issued a warning to the UK that it will have to pay its outstanding share of the EU budget even if it leaves the EU without a Brexit deal.  In a statement confirming the EU’s Brexit preparedness remains fit for purpose, the Commission said it would not enter talks on the future trading relationship until the UK honours “the financial obligations the UK has made as a member state”. Car production falls dramatically According to the Society of Motor Manufacturers and Traders (SMMT), despite the fact that Brexit was delayed until 31 October, the postponement came too late for factories to change plans, prompting a dramatic reduction in output. And, so, the car factories shut down many of their operations in the UK in April to cope with disruption from 29 March, resulting in UK car production being cut in half for April. Car factories normally incorporate a shutdown period over the summer, but this was brought forward to April to cope with the supply chain disruption that Brexit might have brought and to give manufacturers time to learn new customs procedures.  EU negotiator to lead trade unit The EU’s deputy Brexit negotiator, Sabine Weyand, will lead the EU Commission’s trade unit in Brussels from June. This means she will be front and centre in the future during talks with the UK on its future relationship with the EU after Brexit. 

Jul 01, 2019
AI Extra

Cróna Clohisey give a run-down of the recent Brexit extension and what that means for Britain. Following a nine-hour summit of the heads of state of the EU in Brussels last month, Brexit has been delayed until 31 October – seven months later than the original departure date of 29 March 2019.  The UK Prime Minister had hoped to get a three-month extension and the result is shorter than the 12 months preferred by some EU leaders.  Reports emerging from the summit suggest that the French President Emmanuel Macron was in favour of the Halloween extension.  Emerging at 2:30am following extensive talks, European Council President Donald Tusk had a clear message to Britain: “This extension is as flexible as I expected, and a little bit shorter than I expected, but it’s still enough to find the best possible solution. Please do not waste this time.”  The deadline can still be shortened if the UK Parliament passes a Brexit deal. Talks between the Conservative and Labour party continue, but this delay to 31 October does mean that the UK may very well have to contest the May European Parliament elections. Theresa May said she was hopeful of getting a Brexit deal before 22 May – meaning the UK wouldn’t have to partake in the elections.  “I continue to believe we need to leave the EU, with a deal, as soon as possible… And vitally, the EU have agreed the extension can be terminated when the withdrawal agreement has been ratified… The choices we now face are stark, and the timetable is clear. We must now press on at pace with our efforts to reach a consensus,” she said. The EU had a clear message emerging from the summit – the withdrawal agreement is not up for renegotiation. The UK Parliament must agree on a way forward in the negotiations but the option to revoke Article 50 and effectively reverse Brexit remains on the table.    Cróna Clohisey is a manager of tax and public policy at Chartered Accountants Ireland.

May 01, 2019
Technical

Housing remains an issue all over the country. So much so, even trainee professionals can struggle to get on the property ladder. Annette Hughes, Director at EY-DKM Economic Advisory, examines why this is the case and what should be done about it. Housing remains top of the political agenda for the sixth year in a row in 2019. These housing challenges are wide-ranging, not least for those working and studying in our major cities. Recent headlines announcing the first signs of a slight slowdown in house prices and rents will be most welcome for the many first-time buyers (FTBs) who were keen to do so in the decade since the recession. The emergence of the crisis in the private-rented sector has led to rents by end-2018 being 14% above where they had been at the height of the Celtic Tiger years in 2007, according to RTB Rent Index. The most recent data from the CSO for November 2018 showed the first monthly decline in residential property prices since the end of 2016. By December, the annual rate of house price inflation had moderated  to 6.5% nationally and to 3.8% in Dublin. Average house prices for FTBs were €366,000 in Dublin and €209,000 in the rest of the country. Soaring rents, according to daft.ie, have shown the first signs of slowing, with annual rent inflation reported at 9.8% by the end of 2018, while average monthly rents nationally were €1,347 and €2,029 in Dublin city.  Like most of the younger demographic studying and working, the rising cost of accommodation over recent years will be uppermost in the minds of Chartered Accountants Ireland students. As a profession, accountants are an invaluable asset in any economy, working across a vast range of roles in businesses, the public sector and academia, with approximately 5570 students nationally, including circa 2160 in Dublin, currently training to be a Chartered Accountant.  Affordability Recently, EY-DKM carried out an analysis of affordability for students involved in a structured programme, along with newly qualified accountants, to ascertain the cost of buying and renting. The average salary for each individual is based on salary surveys undertaken by Chartered Accountants Ireland and irishjobs.ie, with lower salaries for those working outside of Dublin. The analysis examines the maximum priced property that could be purchased based on two people on the same income seeking a mortgage using the Central Bank rules which set a loan-to-income (LTI) ratio of three and a half times, and a loan-to-value ratio of 90%. The deposit on the house is the last 10% but, given their income levels and limited participation in the workforce, this is likely to be challenge for young workers. The proportion of net income required to fund mortgage repayments is calculated and these proportions are compared with the cost of rent for an individual at each stage, based on the assumption that the individual is sharing the accommodation and pays 40% of the average monthly rent as a first-year trainee, 45% as a final-year trainee, 60% as a newly qualified accountant and 75% of the total monthly rent after working for five years.  The results are summarised in the analysis above. In regard to house purchase, it is clear that as the average salary increases, the maximum property price based on loan-to-income multiples and two earners increases by around twofold between the first year in training and becoming qualified. However, the deposit required is equivalent to almost 80% of an individual’s salary in each case (40% for a couple), which makes the option of purchasing a property an impossibility, at least until working for a period of five years.  In this instance, the only alternative, apart from those who have the option to live at home, is the private rented sector. Based on current rents and the assumptions outlined above, rent consumes between 35% and 42% of an individual’s net income in Dublin. The corresponding proportions are substantially lower outside Dublin at around 21% to 26%. With rents above 40% of net income (30% of gross income), it is no surprise that it is most unaffordable for trainee accountants in the Dublin area.     Over recent years, Dublin has been ratcheting up the rankings in a number of cost of living surveys of major cities, mostly to do with our accommodation crisis. According to a 2018 survey by Mercer, Dublin moved up 34 places in the global rankings from 66th to 32nd position to claim the top eurozone spot from Paris. While a range of policies have been put in place and are beginning to deliver new supply, there needs to be a concerted move with respect to policy to find ways to reduce the cost of building, thereby ensuring better viability for delivering new, much needed supply in city centres. This alone would go a long way to helping the housing affordability issue for many potential  first-time buyers.

Mar 01, 2019
AI Extra

Cróna Clohisey explains what will happen to import VAT in a no-deal Brexit and the government's proposal to solve the problem. Following extensive lobbying by the Institute over the past two years, the Irish government joined the UK government in announcing proposals to postpone the payment of VAT on UK imports in the event of a no-deal Brexit. Without the introduction of the postponed method of accounting, VAT would become an upfront cost for Irish and UK traders who trade with each other after Brexit.  At the moment, for trade between Ireland and the UK, the purchaser is required to self-account for VAT on a reverse charge basis. This means that the supply is generally zero-rated in the member state of dispatch and the purchaser accounts for VAT in their next VAT return. If the purchaser is entitled to an input credit for the VAT payable on acquisition, they can claim this on the same VAT return; thus making the VAT position neutral.  For example: a trader in Ireland purchases goods for taxable supply to the total value of €10,000 from the UK in February 2019. The Irish trader accounts for VAT on the purchase at the rate applicable in Ireland (23%). A simultaneous input credit of €2,300 is claimed on the next VAT return. Therefore from a cash flow perspective, no VAT is payable on the VAT return in respect of this transaction.  After Brexit – no postponed method Looking at this scenario after 29 March 2019 if the postponed method was not introduced, the goods purchased from the UK into Ireland would be regarded as imports from a country outside of the EU. The importer must pay the VAT to the tax authority in the importing country at the time when the customs duties are paid. Therefore, taking the above example, the VAT of €2,300 that arises for the Irish business on the goods imported into Ireland from the UK becomes payable to Revenue in Ireland immediately on importation in, say, April. The Irish trader then claims an input credit of €2,300 in the March/April 2019 VAT return which might be filed weeks later in May 2019. In contrast to the intra-community acquisition scenario, the Irish trader in this situation has an upfront cost of €2,300.  The postponed method   The introduction of the postponed method of VAT accounting will mean that the VAT on imports is not due upfront and will be accounted for at the time the next VAT return is due; therefore helping cash flow.  Importing into the UK from the EU Reversing this example, a UK trader imports £10,000 worth of goods from Ireland in April 2019. Without the postponed method of accounting for VAT, UK VAT of £2,000 would arise on the import in April 2019 and any input credit due would then be accounted for in the next VAT return which would be due by 7 June 2019. With the postponed method, all of the VAT of £2,000 along with any input credit can be accounted for on the one VAT return by 7 June 2019. The postponed method will help the cash flow of Irish and UK traders. 

Mar 01, 2019
Technical

Crona Clohisey ACA answers the questions you were embarrassed to ask about the Brexit withdrawal agreement. What is in the Brexit withdrawal agreement? There are 600 pages of detail on citizens’ rights, the transition period, the divorce bill and the Irish border. All of these need to be agreed before talks can move on to the future trading relationship.  What is the Irish border conundrum? The Irish border has been a sticking point in these negotiations with the UK wanting to avoid a hard border on the island while also being reluctant to detach Northern Ireland from the rest of the UK to facilitate that.   How does the agreement propose to solve the Irish border problem? The agreement says that if the Irish border issue is not resolved after a transition period ending on 31 December 2020, the UK in its entirety (rather than just Northern Ireland which had originally been proposed by the EU) will remain in a temporary customs union with the EU until some form of agreement is reached. This is the backstop.  So will there be no tariffs or checks? Yes, for most goods traded between the UK and EU. Different rules will apply to fish products. There will be no tariffs, quotas or checks after the transition period ends on 31 December 2020 and until such time as a free trade agreement or other trading mechanism is agreed between the sides. This also means that the UK cannot apply lower customs duties than the EU does on products coming in from outside the EU. This arrangement will remain intact until a new arrangement can be agreed to enable frictionless trade on the island of Ireland.  What about North/South trade? To avoid a hard border on the island of Ireland, Northern Ireland will temporarily sit in a separate regulatory environment to the rest of the UK which will mean it will have to follow EU rules on customs, VAT and sanitary standards, for example. If Northern Ireland wants to put goods on the EU’s single market, it needs approval from the EU. As a result, goods can continue to trade freely north and south of the border. Can the UK leave the backstop arrangement when it wants? No. The UK can only leave the backstop arrangement with consent from the EU.   Can the transition period be extended? Yes. The UK can apply to the EU by 1 July 2020 if it wishes to extend the transition period beyond the current end date of 31 December 2020.   What about the Common Travel Area? Both sides have pledged to maintain the Common Travel Area that exists between Ireland and the UK. This means that citizens from both countries can live, work and travel in both countries.  What happens now? The EU Summit took place on 25 November and EU member states formally approved the agreement. The UK government were supposed to hold a vote in the House of Commons on the deal on the 10 December but this was cancelled amid the possibility of it being voted down. Now we are in limbo, with reports that the UK will seek some amendments to the deal from the EU. However, while the EU has said they can offer clarifications, no other deal can be offered. As we wait, both the UK and EU have issued a raft of guidance on how to plan for a no-deal Brexit.    If the withdrawal agreement is ratified by the UK and EU parliaments, talks on the future relationship can start.  Is a no deal Brexit still a possibility? Yes. If the withdrawal agreement is not passed by both the UK and EU Parliaments, there will be no deal and therefore no transition period. The UK will leave on 29 March 2019. Crona Clohisey is a Manager in Tax and Public Policy at Chartered Accountants Ireland.

Jan 03, 2019
Technical

Whether it’s phone apps, home automation, or cashless commerce, digital disruption is the new normal for consumers today. What does this have to do with the future of finance? Everything.  WORDS BY DANIEL GAFFNEY AND KEVIN SCAHILL The technologies needed to reimagine finance are here and are becoming a fixed part of many finance functions, supporting finance to both achieve better efficiencies (e.g. robotics) and provide better insight into key business decisions (e.g. cognitive). We’ve  looked carefully at what finance leaders are doing and at the technology that’s available, and then we asked these questions:  What would be possible if we combined different technologies to reimagine the future?  How would the work of finance get done and who would do it?  How could finance contribute even more to the success of the company?  With these questions in mind, here’s some of what we believe might just transpire. 1. The finance factory – transactions will be touchless as automation and blockchain will reach deeper into finance operations. Some find it interesting to speculate about finance disappearing under the crush of digital disruption, but we don’t see that happening. Yes, finance teams will likely be leaner, but that will mostly be a function of headcount in Operational Finance (order to cash, procure to pay, transactional accounting, etc.). Meanwhile, expectations for support from business finance (business partnering, reporting, planning, budgeting, forecasting, etc.) and specialised finance (tax, treasury, etc.) will continue to grow. This means that there will be a premium on talent that understands technology and business – professions that are already in short supply. 2. The role of finance – with operations largely automated, finance will double down on business insights and services.  The skills required by finance professionals will change as new combinations of technology and human workforces permeate the workplace. Routine forecasts will be handled by algorithms that are constantly evaluated by small resource pools, including data scientists, story-tellers, and cognitive psychologists. 3. Finance cycles – finance will go real-time.  Many finance cycles today are driven by technology and data-processing limitations. Things occur on a regular schedule because that’s the only way they can happen today. When information becomes available instantly to those who need it, traditional cycles become unnecessary. That frees people to focus on discovering new insights and acting on them. 4. Self-service will become the norm. With growing expectations for responsiveness and quality from finance, getting self-service right is paramount. When your customers have to take care of themselves, the last thing finance needs is for them to be frustrated or unhappy. Over time, smart agents will learn what kinds of business information an individual needs and deliver that information proactively. 5. Operating models – new service-delivery models will emerge as robots and algorithms join a more diverse finance workforce. Companies will assess the benefits of automation against onshore and offshore operations. At the same time, the need to build dynamic, cross-functional teams will strain finance organisations that aren’t preparing now for what’s ahead.  6. Enterprise resource planning – finance applications and microservices will challenge traditional ERP.  As cloud becomes the norm for ERP, finance applications and microservices will proliferate. You’ll be able to drastically reduce the complexity and cost of technology, without sacrificing functionality. 7. Data – Application Programming Interfaces (APIs) will drive data standardisation, but it won’t be enough.  Data problems hide beneath the surface for many CFOs, some of whom don’t fully appreciate the heavy lifting required to fulfil their requests. Automation and cognitive will make it easier to get the work done, but it’s still going to be hard and tedious. 8. Workforce and workplace – employees will be doing new things in new ways, some of which will make CFOs uncomfortable. Implementing new technologies is relatively easy compared to changing your talent model. They’re obviously connected, but cultural and organisational shifts related to your workforce may take much more time and care to get right. Your finance organisation should be looking at every new hire through the 2025 lens. Everyone in the team should be able to contribute to elevating the value of Finance in terms of communication, impact, and influence.  We don’t know for certain what the future will hold – some of our predictions may prove accurate, others not so much. But we need to be thinking about what’s likely to happen and to prepare for it. The years ahead hold great promise for finance organisations that want to create more value for the companies they support. Now is the time to step back and make sure your roadmap to that future is clear. The prize? Well, CFOs know their companies will benefit if finance can more efficiently deliver better financial information in a more timely fashion.   Daniel Gaffney is a Partner and Kevin Scahill is a Senior Manager of Consulting in Deloitte

Nov 01, 2018