If volatile and unprecedented were the words synonymous with 2020, 2021 offered little in the way of change. But after another year beset by challenges, the industry is showing resilience and is responding positively to the acceleration in digital tech brought on by the pandemic, while also seizing business opportunity post-Brexit. John Edwards, CEO of The Institute of Financial Accountants (IFA), looks back at the past year in the sector.
Along with COVID-19, 2021 saw the added challenges of a no deal Brexit, supply chain issues, unique cashflow challenges, rising costs and staff shortages. For the sector at least, there have been reasons to be cheerful in the face of such a difficult climate. Increased demand for the sector’s unique and solution-oriented advisory services has encouraged further growth. Accountants have thrived, embracing ever more complex changes in legislation, and supporting businesses to survive and flourish during challenging periods. International connections have strengthened, which has been one interesting development, as international accountants seek to learn from UK best practice, and UK accountants and practices establish international offices or partnerships for the very first time. It appears the nation’s exit from the EU has triggered necessary demand and opportunities for practice overseas.
The digital shift
Digital transformation has continued, as the sector looks at ways to further embrace the digital shift and seize the opportunities that emerging technology presents. Only a few years ago, new technology was being predicted by some as marking the beginning of the end for the sector, but more businesses are understanding how to leverage the potential of digital tools, and seeing how technology will support, rather than replace or constrain accountants. This is particularly true with technologies such as cloud-based data management, process automation, and advanced analytics, which are only adding value. For instance, automation is improving efficiencies, freeing agents to focus on strategic tasks requiring creativity and collaboration.
The adoption of technologically driven solutions in the accounting industry is only set to intensify, with a predicted Compound Annual Growth Rate (CAGR) of 6% over the next three years, taking into consideration the effect of the pandemic on the industry.
This digital shift is not just being seen through more and more services moving online, but also via knowledge sharing through conferences, board meetings and local meet ups. There is an ever-growing appetite for smaller, more manageable chunks of practical advice and training, reflecting an increased need for real-world, up-to-date advice.
Major legislative changes
Predictably, 2021 signalled significant legislative consultation and change. The IFA has responded to 11 government consultations, spanning everything from fraud to the role and effectiveness of Companies House, the role and effectiveness of HMRC, simplification of the tax system, reform of the basis period, and timely payments. The IFA has also challenged government on the assumption that Professional Indemnity insurance will in any way raise standards of unqualified accountants. New legislation has also come into force, so accountants have had to tackle: Making Tax Digital 2, IR35 changes, post-Brexit sanctions and trading changes, and VAT reverse charges to name but a few.
Welcome relief for SMEs
There was good news for SME businesses following the government’s revised plans concerning the Economic Crime Levy (ECL). In the wake of the Budget 2020, the government announced the launch of the anti-money laundering levy on businesses, to raise £100million per year to fund ambitious reforms as part of the updated Economic Crime Plan 2019-2020. Levied on businesses that fall under anti-money laundering (AML) regulations, the originally proposed levy would have affected businesses of all scales in all sectors within the scope of the regulations, including the accountancy sector. Following extensive industry consultation, the government published its amended plans, along with draft legislation, which incorporated views that smaller firms (those below £10.2m UK revenue) should be exempt from the ECL. This news came as a welcome relief to SMEs and particularly accountants, who will no longer need to grapple with complex levy calculations as well as additional levy costs.
The growing threat of fraud
Emerging threats to the sector was another area the IFA consulted on. Money laundering runs into the hundreds of billions of pounds every year according to The National Crime Agency (NCA), criminals’ strategies are constantly evolving, with The National Risk Assessment (NRA) of Money Laundering and Terrorist Financing warning that the risk that accountancy service providers could be used to facilitate money laundering is considered high. The pandemic has only served to exacerbate the growing problem of fraud, and as it has showed no signs of abating throughout 2021, neither has the efforts of fraudsters in finding new ways of operating with Furlough fraud being one ongoing risk factor.COVID-19 has led to an increase in the delivery of services via remote methods such as cloud accounting platforms, potentially placing practices at higher risk. There is also the expanding threat brought by Chinese underground banking, with the IFA urging accountants to regularly review their client and firm-wide risk assessments.
COP26 has laid bare the urgency of businesses to place sustainability at the core of their agenda, and the accountancy sector is no exception. 2022 must now back up 2021’s rhetoric with action, as businesses must focus more on their impact on society and the environment. This also opens an opportunity for the sector, as accountants can position themselves to assist SMEs in completing complex calculations and identifying their business’s carbon footprint.
By John Edwards, CEO of the IFA