What's next to secure the future of your business?

Margaret Laidlaw: Good morning, everyone. I think we will make a start. It's bang on 9:30, so I think we will be good to go. Hopefully other people will join us we as we go through, so just by way of introduction: I’m Margaret Laidlaw, and I lead the UK privately owned business segment of Mazars.

I’m here this morning to have two roles. To provide an introduction to the webinar itself and the series of webinars that we're going to hold over the next few months, and also to be involved as a panellist in terms of the different speakers that we're going to have today.

We've got some great speakers joining us today, and we're covering a wide range of topics, which is brilliant.

Margaret Laidlaw: Just a bit of administration, there’s a Q&A button at the bottom, if you do want to ask any questions, we will endeavour to answer them at the end. If we do run over slightly in terms of the presentations, then we will send you the questions with our responses. In addition to that, we will send you copies of the slides.

As you can see, our webinar is titled ‘what's next to secure the future of your business’. As we all know, so far 2022 has been a turbulent year; it's been a tough year for everyone.

The key highlights, the key things that have affected businesses, are high inflationary pressures, the spread of the omicron variant, and the ongoing conflict in Ukraine.

Impacting many businesses, these factors have led to significant pressures and, in addition, helped to cause the cost of living increases we're seeing.

So, in this session we're going to look at the current and future landscape of business and how we can give you some advice on how to look to and prepare for the future.

There are quite a few areas that we would like to cover, and the first that we’re going to be covering is the economy, and what we're seeing happen at the moment with the economy.

We’re then going to move on and look at aspects of tax, in particular the spring statement and the increase in national insurance. We will look at some strategic matters and what you might like to think when it’s time to consider the strategy for your business. Finally, we're going to finish off on some indirect tax matters.

We have lots of specialists joining us here today. I’m joined by Mr George Lagarias, Ian Goodwin, Dan Brager and Juliet Bailey. As we go through the presentation, you'll get to meet them, and I think that we're just about sort of ready to kick off.

So, George if I could maybe just start with you, if that's okay, and you could tell us a bit about the economy and what you see it looking like for business for the rest of 2022?

George Lagarias: Of course. Good morning, everyone. My name is George Lagarias, I am the chief economist at Mazars UK. I'm also the person with the most slides as economists use slides - because that's essentially how we understand the world and blindly assume that everybody else should also do that. Just to put your mind at ease, the rest of the speakers don't have as many slides, which is generally considered to be a good thing.

Having said that, next slide Jordan, thank you very much.

Now, and I’m sorry that that's about all the poor humour I could afford today because the situation, the economic situation is, I hesitate to use the word, but dire. On the one hand, we have inflation. Inflation, as you know, was not an issue in 2020.

It became an issue because of supply chain convulsions in 2021, but we thought that would be over and. Just as it was starting to ease, the war in Ukraine happened and prices for all commodities shot up.

Now we have a lot of inflation, and inflation that could become endemic. It could stay with us and spill into other sectors of the economy.

George Lagarias: So, we have inflation, on the one hand, and we have China, which has been slowing down for a long time in a secret way, (you know they're not really giving us the numbers of the slow down, but we have ample evidence to support that), and now the lockdowns in Beijing, Shanghai and other places are also contributing to a further slowdown the global economy. China was responsible for two thirds of global economic growth every year.

We also have the post pandemic fiscal and monetary overhang. There was a lot of money spent by governments and central banks for the pandemic and now, just as we started to get out of it and started to pull back that sort of expenditure, the war happened, and we were left without munition.

Okay, because governments and central banks now want to take care of inflation, they're going to pressure the economy intentionally.

They're going to reduce demand intentionally in a bid to put inflation down, so all this means higher recession risks. By recession, we mean either slower economic growth than what we've had over the past few years, or even downright negative growth. The reason that we're also using slower economic growth, say one or 2% is that this is an aggregate number. So, some people may grow at 5%, but for a lot of people, it will feel like a recession because they themselves will experience negative growth and repercussions of the cost-of-living crisis, especially in the UK.

Now, let's talk about the UK. Inflation has been the worst since the 1970s and it keeps rising. Today we have the Bank of England's decision to hike rates, (they will probably hike once but they could surprise us and hike twice in a single session). So, again, high inflation means that the central banks were there to help us and mitigate the worst aspects of an economic downturn, their action now is exacerbating the economic downturn.

This is this is pretty much what has happened historically. Now, I'm using the US example simply because the US economy leads the rest of Western economies.

The US has hiked rates aggressively four times in recent years, and all four times a recession has followed.

Sometimes this is intentional, sometimes not, but this time around we have another hurdle. In 1981 when Reagan and Thatcher took a very aggressive stance towards rates, at the same time they were easing restrictions on banks. They were letting banks lend more to mitigate some of the worst aspects of the downturn. Now, it is the first time in nearly 50 years, and it's the first time in a monetary environment that we have tried to hike interest rates aggressively without easing restrictions on banks. So, it's interesting to see how that goes, but the storm is gathering towards a recession. We're not calling it yet, but we're saying it's a high probability event, (35 to 40%, in our view, that the UK will experience a material slow down or recession, the next 12 months).

On top of what the UK is experiencing, and because of rate of inflation, we also need to be aware that supply chains were already faltering before Ukraine. Now conditions are as tight, or almost as tight as they have been in in the post pandemic.

Shipments of goods are not arriving, and that keeps pushing prices up.

Why? Because companies are just going to order more of everything to make sure something arrives.

It's also wreaking havoc with the different calculates we make for GDP and what have you, but the main point here is that supply chain managers, CEOs and CFO have had enough. They’re thinking of ways to reconfigure the supply chain because they've been in pain for two years.

They have not come to a conclusion yet. Around 70% of managers are thinking about reconfiguring their supply chain, according to research conducted by a prestigious consulting group in Boston. Now, interestingly, and this is research by the Economist, they're not sure how. 50% of them are thinking about diversifying their firm supplier base, i.e., we're not just buying from China anymore.

We’re buying from Vietnam, from other places. We're putting factories in other places as well. What we're creating are contingencies; we're creating redundancies.

Now, those who don't want to spend as much, the other half, they're considering reshoring or near-shoring, or just relying upon fewer suppliers overall.

So, the trend has not emerged yet, but what is happening is that supply chains are being changed and that in itself is inflationary. That in itself will cause economic growth to be reduced for the next two years versus what would have been otherwise. Are we talking about globalization? No, but we're talking about the next step of a more mature globalization.

Our quarterly is actually devoted to that notion.

Now keep in mind, because this is very important, I cannot stress enough that we're not going to get any help from the government or the Central Bank, which is essentially the government. Why? Because there is a lot of debt and because governments and corporates have a lot of that on their back.

With inflation running, they really cannot help us out this time. So, banks are not there to help us, and central banks are not there to help us.

Governments are not here to help us. They’re running this experiment and will say, “okay, you know what, let the market balance out by itself”.

I’m not sure how this is going to go. My personal view is that they will have to step in in about six months’ time if this experiment doesn't work out.

The broad message here is that in this environment, we see evidence that a lot of companies, especially mid and smaller caps, are having a hard time meeting interest payments.

Again, especially around the unlisted, the small CAP, and the micro-CAP space, they have a lot more interest expenditure than they have earnings, and they can only support that for so long. We're also seeing evidence across the board, where a lot of companies have negative earnings.

Now, obviously, this does not apply to the FTSE 100, 70% of which is actually getting their earnings from abroad. We're talking about the smaller companies, which constitute about 95% of all companies doing business in the UK.

If you look at that space, you're going to see a lot of pressures now feeding into the bottom line of those companies.

One of the repercussions of this is going to be M&A. If companies are in pain, especially smaller ones, they're ripe for takeover, especially if they have good products. This year, we do expect more M&A focus on tech, as always. Focus on ESG, the environmental, social responsibility governance theme, so companies that adhere to the theme are more attractive takeover targets.

Everything at lower valuations too, because, let's face it, we're entering a sort of economic crisis or recession.

Or we might be anyway, it doesn't really matter whether we actually enter it or not, it's what the market believes because that's what's going to determine valuations.

Whatever deals, you know, they must be transformative. Companies must aim for synergies, especially around optimizing their supply chain.

Now, what does this all mean for businesses? It means a lot of policy uncertainty.

Governments and central banks are going to go back and forth; they're going to change their minds.

You know, this is a really a good time to talk to specialists in and around those sectors to see what they're thinking about.

Governments especially will have a difficult time. Politically, nobody likes high inflation and low growth so expect some political raucous.

There is going to be a modicum of business uncertainty and business mobility because of this. Companies will change, merge and try to adapt in this evolving environment.

Add the ESG part, which is a great 10-year transformation of many sectors, and you're going to see a lot of change at an even faster pace.

This environment, which trending towards recession, is a good environment for energy and utilities. It’s also good for infrastructure, because whatever money is going to be spent, it is going to be spent there.

It’s also a good environment for asset managers because, at seven or 8% inflation, taking your money and investing it the portfolio is probably not optimal solution.

Over the long and short term, there’ll be bad times for most other industries, especially manufacturing industries which are having a hard time getting the parts, they need to do their job and produce their final product.

Margaret Laidlaw: Thanks, George. Do you have any commentaries in the longer-term picture, around Brexit and the Ukraine Conflict?

George Lagarias: You know what, in the in the scheme of things today, I think it’s less of an issue.

It might become an issue, but I think both the Europeans and the Brits just don't want to fight over that now, you know they're just putting it to the side and then they're going to decide when they're going to have this this particular argument.

Make no mistake, when the argument does come, and I cannot predict when that’s going to happen, it’s going to be another big problem to deal with.

This is by no means going to be covered by all the other problems we just mentioned, it’s just that it's been put the side for now okay.

Margaret Laidlaw: Great thanks George I think we're going to move on to Ian now, and we're going to talk about tax. So, I suppose the Chancellor spring statement, Ian, you will obviously discuss that at length, but it would be good, just for you to maybe give us some of those key takeaways again and from a business point of view.

Ian Goodwin: Absolutely fine, Mags. Thank you and great to see everyone again. Great to talk to everyone today. I’m Ian Goodwin, employment tax partner and I generally try and help clients retain their staff, make sure that they're reducing risk, and make the most of people's pay.

On the Spring statements itself, Mags is right, it is a very short thing to talk about really, it wasn't a budget, it wasn't supposed to be a budget.

There were some things announced which have been headline news to some degree around the national insurance increases, which were announced last year, the 1.25% for both the employee and the employer.

So, we've now got National Insurance at 13.25%, 3.25% for employees and 15.05% for the employer. Did however see in the spring statement, the chancellor announce that national insurance won't be paid by employees until they earn at least 11,987 this year and 12,570 pounds in future tax years.

So that's going to be mirrored by with the personal allowance for tax purposes, however, there was no increase in the threshold from an employer perspective; that was purely just for employees.

Separately, in the spring statement, there was an announcement around the employment allowance, which is a credit against your insurance bill. For organizations that have a class one employers’ NIC of less than £100,000, that's coming from £4000 to £5000 from April 2022.

There’s also an announcement that income tax will reduce by 1% from 20% to 19% of the basic rate from April 2024, but we'll see how that plays out.

In the small print we did see an announcement that the government was to invest another 165 million in compliance, so don't be surprised if there are any reviews that they want to take on board for any areas of tax CJRS, national minimum wage or IR35 in the near future. They are starting to get out and see clients and businesses to test how they are doing, from a compliance perspective.

Margaret Laidlaw: Can I just ask a question Ian, and in terms of the compliance reviews are you seeing an increase already in that, or are you seeing anything in a particular sector or area of the market?

Ian Goodwin: We are, Mags. In particular there is more interest around CJRS. We now even have a CJRS team. You may even have seen some of the HMRC inspectors on LinkedIn change their details to being in code with 19 or CJRS theme. So, there are more focused on that.

The error rate for CJRS, they think, is between eight and 10%. So, with 75 billion paid out, they think there's a good 7 billion to go.

With national minimum wage too, we’re seeing more focus on that. Alluding to what George has said, there are a lot of pressures on costs if workers are underpaid.

Therefore, there's a real focus on them getting the right amount of pay from employers. Again, this highlights that there's a lack of real government support.

Minimal, in a sense of it not really being applied to businesses. It’s more being applied to workers, but at a minimal level the increase in the national insurance threshold and potential reduction in income tax in a future tax year.

Margaret Laidlaw: Great. Thanks, Ian. I suppose if you're setting there as a business and you see these rising costs, how can businesses help to reduce that burden for employees? What are you seeing in our own client base?

Ian Goodwin: I think it's important to put this into a bit of context, really. Because we've touched on something that George has already provided a really good overview of.

There are all kinds of pressures on businesses, but where does this go to when you're looking at that on a purely employee level where you've got employees that are earning around the national minimum wage. What we're seeing is that it's going to create an extra cost for businesses of around an extra 1500 pounds a year to employ that individual because national minimum wage has gone up by about 6%. Once that goes up, the pension costs for the employer will go up because there will be more pensionable pay.

Also, the National Insurance cost has already gone up, which we've already noticed. So, we’re looking at an increase of about 7% overall for organizations, and that's before we get into the point of how they think about any pay differentials for other staff members and all the other costs that George just alluded to. There are also supply chain pressures as well, so that also exists as a relevant factor.

There are some elements there that organizations are really going to have to focus on to manage those costs. Even when you look at people that might not have a change in income, so they might be going to £30,000, we're still seeing that as a potential pressure point, because if you're not increasing their pay, the pay differentials within the organization are shortening.

So, then it's a case of, what can we do. How do we break that open? Ultimately there's an extra cost for businesses because of this national insurance rise, and the employees are also going to potentially get a little bit more money because of their national insurance threshold increasing, albeit it’ll rise, but it's not going to be an amount that's going to cover those inflationary pressures.

So, we're seeing large amounts of change at the moment. In terms of workers, there's a big war for talent. People are moving for that extra two, five, ten thousand pounds of pay because they want to be able to pay the bills.

We mentioned interest rate hikes. That’s going to potentially increase mortgage rates, and certain people are going to be mindful of that.

We’ve also seen the price of fuel and groceries and things like that going up to.

It’s going to be really important for businesses to think about those pay differentials, what they can actually do now, and what options are available to mitigate costs when you've not got a lot of cash.

I think there it gets us onto the question of what have businesses done, and how can they help their employees. One way we have seen employees being helped, is through introducing arrangements like pension salary sacrifice and focusing on electric vehicles or for company cars for salary sacrifice too.

Pension salary sacrifice, this is an arrangement that's been around for a long, long time and a lot more organizations are now implementing it. The reason being is that previously when auto enrolment rates are at 1%, it probably wasn't worth doing for many because the savings weren't there. Now, with the national insurance increase, we're in a position where employees are putting 5%, in and the employers are putting at least 3% in. So, there are much more generous savings to be made here for organizations and for the employee as well.

It will reduce the national insurance bill for the employer, it will reduce the national insurance bill for the employee, increasing their take home pay.

And what pension salary sacrifice effectively does, is it keeps everything the same from a pension perspective. The same amount’s going in, and the employee gets paid the same. Albeit, they get more money, because then take-home pay has increased because they're now getting tax relief.

And national insurance relief, it works, because employees’ pension contributions are not subject to national insurance, whereas employee contributions past subjects after insurance. So, by exchanging or reducing your pay by an amount you actually will increase your net pay because you're not paying much insurance and an employer will make a saving.

Here, as an example is someone on 30,000 pounds. So, what that looks is around a 200-pound increase in take home pay and an employee reducing their NIC bill by about 225 pounds, so there are some good savings to be made with pension salary sacrifice.

That may help to reduce some of the extra costs that employers are facing based on what we've just outlined, and with the other pressures that are on businesses too.

This, I suppose, leans on what George mentioned around ESG.

One thing we've been helping organizations with is how they can make that practical to their workforce.

We talk a lot about reducing carbon emissions and doing all these good things for the environment. One thing I've been focusing on, is helping organizations make that a bit more of a reality for their employees, so I can say that they're trying to do some of these things.

One of these things has been electric company cars, and how they introduce that via salary sacrifice arrangements.

There are a lot of new suppliers in the market for company cars coming across organizations such as octopus live electric and pink salary sacrifice and they've been helping more SME clients, I would say.

Rather than some of the large players, they no longer need, you know, 4000 staff to get a company car scheme up and running.

So, it's opening the market to lots of organizations potentially introducing electric vehicles via salary sacrifice, and significant savings can be made for both the employer and the employee here.

And that's why I’ve set out these three types of vehicles here.

Effectively, what we're trying to show here is that if you got the electric car through your company versus if you bought the car yourself, the same call yourself, as much of the ball court

So, what would be the difference there? Well, the employer generally will get a better rate for the salary sacrifice, because they’re working with the lease provider, rather than you go into the forecourt and, ultimately, you won’t be paying all those insurance, MOT and other costs.

So, there will be savings to be made through tax and NIC relief, but also because of how the car is provided, and we see there, an increase of, you know, effectively around two grand a year in net pay between those two.

The one thing that needs to be brought to life is comparing it to your current vehicle if you've got one, and thinking ‘well actually how much extra pay would I get If I got an electric company car versus potentially a diesel car that you already have?’

That’s why we’ve shown in this example, a separate vehicle where you might already have some monthly costs, a little lease for that, and again we'll look at savings of around 1500 pounds a year there that the employee’s going to save. That also bring savings for the employer too.

There’s less cost for them, and again we're saying about a thousand pounds worth of savings for the employer per year by introducing these arrangements, and that's been very popular with all the conversations around things like introducing EV charging points at home, helping employees get solar panels, energy pumps at home via home energy loans that you could take you know, a 10,000 pounds, they wouldn’t be a benefit in kind.

We're also thinking about electric bicycles and things like that, but these have been the two most popular salary sacrifice arrangements over the over the last 12 months and I speak about it on a daily basis, at the moment.

Margaret Laidlaw: Great, thanks, Ian. You mentioned SME businesses, if you're looking at pension salary sacrifice and electric car salary sacrifices, what should companies be thinking about?

Is it just a case of carrying out a review? Is that that the best place to start?

Ian Goodwin: Yeah, I think so. In this case of thinking about a review, it there's no de minimis limit, I mean we've been helping organizations that might have five employees implement pension salary sacrifice and small organizations implement EV cars as well you know. Maybe they might have 20 or 30 staff, for instance, so there's lots of things that can be done. It's just what's right for your organization.

Now, most employers will offer a pension scheme because they've got to follow enrolment regulations, so operating on a pension salary sacrifice basis is something the revenue have clear guidance on, and we help organizations with this.

So, you know, it's not an abusive scheme. it's very much approved. As in EV cars, that works, because it's a 2% benefit in kind at the moment, having a holy electric vehicle.

And you know, that will stay law until April 2025 from what the government rolled out at the spring statement, so there is some comfort that we're not going to hike the benefit in kind from 2% to say 20% overnight. Although, I do think, by the time we get to 2025, they will start bringing in a taper to it, and we will probably see the benefit in kind charge based on the electric mileage you can do in the electric vehicle like they've introduced to the hybrid vehicle so far.

Margaret Laidlaw: Great, thanks, Ian. Is there anything else that you’d like to highlight for businesses at the moment?

Ian Goodwin: I think these are the initial things to do, but I think just from a risk perspective, organizations should be considering that we have got supply chain pressures, we've got inflationary pressures and it's about not trying to take any shortcuts with things; like I said, the revenue are more active.

Supply Chain always makes me think of IR35, and it might not just be goods, it might be services that you're getting through supply chain, so make sure that you've got proper controls in place when you're engaging individuals or personal service companies potentially off payroll. Make sure you're doing the stakes assessments.

If you are paying work close to the minimum wage, it's really important to make sure that you're checking out the revenue, they are going to be out in force more for that, given the pressures on pay and the cost of living at the moment, so it's really important to do that.

And also, if you've not had an HMRC review for a while, they are looking at coming out if you have not had one for three to five years.

And we've seen some really interesting reviews that have been quite focused. One I've got at the moment is around the definitions of a vehicle.

So, whether a van is a van or a car, it might be a van for VAT and the DVLA for insurance purposes, but it might be a car for benefits in kind services.

And we're seeing that with combi bands at the moment, they are quite popular for the revenue to look at so where you've got a band fleet.

If you've not recorded those, they potentially should have been as a car, so it's really important to look at those.

And also, we're seeing that with temporary and permanent workplaces, given hybrid working is becoming more common and people are now reimbursing potential new employees or current employees to come to the office.

That might not be allowed if it's being reimbursed tax free. It may well be taxable, so it's important to get a grip of that as well, and there are some really core things I've been seeing organizations wrestle with over the last six months.

Margaret Laidlaw: Thanks, Ian, that’s really helpful. I think we’re going to start looking forward now, and Dan’s going to join us.

So, we've heard from George around the economy and Ian around the tax challenges, so I suppose, Dan, if you can maybe just talk us through what you're seeing in terms of businesses looking at their strategic priorities at the moment, and how they're preparing for the future, if that's okay.

Dan Breger: Very good. So, I’m Dan Breger, I’m part of the management consulting team. I'm an associate director and my focus is around business resiliency and preparing organizations to take those steps forward.

The big question is, what are we seeing, what would you need to be doing to prepare to meet those challenges that George introduced, and Ian talked about?

First and foremost, is to take that enterprise view of your organization your organizational health.

So, we use this kind of strategic business impact analysis viewpoint, which is made up of a number of constituent parts, but ultimately for that leadership view, for you to understand if, as an organization, you're in a good place to move forward.

You need to understand what ‘good’ looks like for your organization. So, we've got a number of layers here, we've got the strategic direction, which might have shifted, might not have been reviewed or considered over the last few years, the emerging themes that you're seeing within your sector within the marketplace and those perceived risks, those blockers, to enabling you to take advantage of those things.

Then we go another level down and we look at the functional performance. So, we've got a few examples there of your real estate, your assets, your people, your finance, your marketing functions.

In order to move forward, to grow and strengthen your business, you need to make sure those constituent parts are in themselves performing appropriately, that you don't have any red flags when it comes to attrition rates or leases that are not in keeping with market rates, that your marketing comms are aligned, if you're speaking to the right people and have the right messaging there.

We also talk about key external suppliers, regulators, customers, (what they're saying, what they're doing, what their demands are on you, how those have changed, and how they can support you moving forward), and we'll talk a little bit more about that when we talk about supply chain as well.

Underlying this we've got the major plan changes, so I think we've all seen over the last few years an acceleration in digital, for example, and projects transformation programs to get stronger E commerce platforms to engage with customers in different way.

At the same time, and often hand in hand, we have these recent disruptive events.

You've got the big ones that I won't even say out loud, but we've also got the transformational program disruptions that have also occurred and understanding what those look like and how we need to manage those moving forward is also a critical part.

So that builds a picture of our organizational health through the key performance indicators on the left, and then going down the key risk indicators on the right and understanding whether we're operating currently within our own risk tolerances, or whether we need to be tweaking or developing what we're doing before we are in a position to move forward.

So really, the analogy of the house: you need those firm foundations before you can start building the next floor of your building.

That's the first part of this, the second part is that we've had a number of clients talk about recently is around emerging risk.

I’ll give an example that you may be familiar with: wordle. If you're not, it’s a very quick game, whereby you've got six chances to guess the word, and if you get the right letters in the first line it highlights a few, and if you happen to write letters in the right place again, it steers you towards the right word.

But there's no science there, it's all guesswork, and if your approach to emerging risk is guesswork, you're going to be off target. You're going to miss the point, and I think Ian referred to this as well, so there are a number of things to consider when we look at emerging risk.

It’s about having a robust framework for recognizing where risks are coming down the line, so that trickle effect certainly we've seen most recently from Ukraine a huge number of challenges that have come down the line, affecting cost of living.

So, the sources of risk intelligence, whether that's internal through your systems and your people through open-source subscription services, as I said earlier, your customers and you're interested parties.

Recognizing the nature of the risk. Is this internal to you or external? And the span of control: whose responsibility is it to manage the risk, and what is your role there?

Is this a time locked risk or incremental is an evolving and that could go back to something like your transformation programs, which would ideally be locked around those programs?

The exposed areas, as I refer to area with respect to things like the cost of living, that would affect other people, but then you have other exposures relating to your information, your operations your supply chain, that we should talk about.

So that gives you a broad view of where and what the emerging risk looks like, and then, subsequently, you need to drop back into this management context and think about your risk appetites, your tolerance for risk, what's acceptable and what's not, how you quantify your risk, and then ongoing monitoring and integration of the existing risk management at an enterprise level. And then subsequently dropping out of that and back to my wordle analogy: do your business continuity strategies align with your emerging risk view?

So that, combined with that strategic business impact analysis, would give a view of your organizational health and set you up in the right direction to move forward, as you embrace the coming months and years.

Margaret Laidlaw: Thanks, Dan. I know that George mentioned supply chain pressures. What are you seeing in terms of supply chain reviews, and what should companies be thinking about right now?

The key point here for supply chain is understanding supply chains. Organizations have been firefighting for a number of years now, it's about the availability of their supply chain product.

It's not necessarily about making the right decisions, it's making the only decisions. So that's led to a position where you may not know your supply chain provider, and you may not know your risk exposure. So, really the messaging here is around knowing and mapping your supply chain from end to end.

Recognizing where there might be some concentration risk, because your product or service is flowing through certain regions, which we have seen, most recently, could be disrupted and cause significant blockages in the delivery of your services.

Again, falling back to risk management, so there are two lenses here from a strategic side. It's about how you organize your supply chain.

Do you bring it all in house, increasing the cost but reducing the risk around controlling quality and availability of your supply chain, or are you outsourcing that? So, reducing the cost but increasing the risk through the lesser control.

And certainly, if you're looking from that perspective, then we need to think about risk management from a supply chain management perspective and reciprocal arrangements around reporting a risk exposure.

This is something actually which has come out quite recently with ISO27001, the information security standard which has got new emphasis on the obligations of your third parties to report on their risk exposure as and when this occurs. So, really, it's, as I say, it's around the transparency and the understanding of your supply chain.

Being able to recognize where those risk touch points are and introducing robust management of that risk and that hopefully will introduce a level of flexibility and agility to move forward and take advantage of your risk appetite in that context.

Margaret Laidlaw: Great, thanks, Dan. One of the issues that’s raised by almost all of our clients is sustainability. What are you seeing in terms of the work that we’re doing strategically for clients around sustainability?

Dan Breger: I think it's a difficult conversation.

I think the last two years, as I mentioned, have been about firefighting.

So, with the best will in the world, sustainability and ESG agendas, have not necessarily been front and centre. Practically because, as I say, you need to keep your business running. You might not have the opportunity to align that strategy in the way you'd like to, so I think now is a moment to get sustainability and ESG considerations back on the radar.

To get some sort of control around this as the potential pandemic challenges are easing off and to also consider how it plays into the new ways of working as well. So, obviously we have things like carbon footprint reduction through agile and hybrid working.

But this is by accident, rather than by choice, and now it's an opportunity to really build a more robust strategy around your supply chain agenda, thereby sustainability ESG agendas, to take you up again for moving forward.

Margaret Laidlaw: Great, thanks, Dan. Is there anything else that you’d like to cover in terms of strategic direction?

Dan Breger: I just think it's really worth highlighting that managing and understanding risk is as much an opportunity as a responsibility, and so getting it right really does open up market opportunity and competitive advantage.

Margaret Laidlaw: Great, thanks, Dan. That’s really helpful, thank you so much. I think we’re going to move onto Juliet now. Having discussed supply chains, Juliet is going to discuss what everything means in terms of VAT.

Juliet Bailey: Thanks, Mags. My name is Juliet Bailey, and I head up the indirect tax practice here at Mazars.

You probably won't be surprised to hear that in the last few years there has been a real focus on supply chain and cost management.

A lot of this echoes what we've been hearing earlier, especially that point Dan just made at the end about looking at supply chains, compliance and how it is as much an opportunity as it is a responsibility. That really resonated for me.

So, when I'm looking at what I think 2022 holds from an indirect tax perspective, and Mags asked me about, you know, do we think there's going to be extra costs coming into businesses, my answer is very much “yes, but”.

Yes, we have seen extra costs coming in, and I can elaborate on those and when my ‘but’ comes in, is it's really not likely to be the full extent of costs, yet we absolutely know there's going to be more to come.

There are different elements to the cost increases, and the ones who are most aware of the actual hard costs of customs duties that we're seeing from an indirect tax perspective for international trade.

So, when a business had previously traded with businesses outside the EU, they were aware of the tariffs and had the knowledge, but nonetheless the imposition of those tariffs on the UK/EU trade has represented an absolutely hard cost, and it's not recoverable, if you incur it you've got to have it there.

And so, people are experiencing that and working out ways around it, ways to mitigate it through supply chain restructuring.

But then the other costs that are really hitting businesses are actually the administration burn. That comes up in in all sorts of different ways. It can be the cost of the extra staff time that you need to spend focusing on administration and paperwork or having to pay for a third party to complete customs declarations or fees that you need to pay to the government ports when you're getting good selected for physical inspection; there's quite a variety of costs going on here.

And there's also the COVID pandemic to factor in, because, in many ways, it's made it much more difficult to assess the impact of the cost on trade between the UK and the EU because that trade has been lower because of COVID, so we aren’t really going to see the full impact for a little while.

And it was only in February that the public accounts committee published a report, and they stated that well, even though trade has been suppressed by COVID, it's clear there's been an impact on the EU exit, and the border arrangements have added cost of business, and I know the public accounts committee has repeatedly raise concerns about this impact.

There was also some research just in by the think tank ‘UK in a Changing Europe’, and they provided an estimate of the post Brexit trade barriers and stated that the cost increases have come up. In terms of just food, specifically the estimated cost increase there was 6% in the UK.

Just last night, I was talking to a retailer, and they said to me, they were just talking amongst the procurement team about what they thought, just a few months ago, at the start of the year, and what their inflation estimate was, and George will probably say, “yeah well businesses aren't very good at estimating that, that's my job”, but you know still they do this, and the business had come up with an estimate for inflation for the full year, and they said that had already been exceeded by April. So, it's clearly a shocker there.

As well as that, HMRC have their own estimate. They've not updated it for a while, but it was back in 2019, HMRC estimated that the administrative burden, the extra cost for businesses, would be about 15 billion a year, and we're waiting for an update on that, but it does give an indication of the huge amount there.

I think the latest statistic is that UK businesses and consumers have paid 62% more in customs duties on goods brought into the UK in the last year, which equates to about 4.8 billion. So just on the 5 billion and that's the highest amount that's been recorded in the last 20 years and it's almost 2 billion from the same period, a year ago, as well.

And so, these cost increases are really a point that businesses and think tanks and government are all in agreement on. Yes, costs are going up.

It does take me back to the ‘yes, but’ that I mentioned at the start, because yes businesses have experienced higher costs, and I think a lot of the concern is that maybe the changes haven't been as much as we’ve envisaged.

There's been a bit of a soft landing in place from an indirect tax perspective, with a sort of soft landing and a transition period, and so a business might not have experienced any problems with HMRC.

They might be thinking, ‘oh yeah I think seem to be going okay’. That doesn't necessarily equate to any assurance that your compliance is correct and you're paying all the costs that you should be, so there's a bit of a sort of mystique around it, with more to come.

So, a bit more to go out there, but those in itself, I think, being an opportunity for businesses to think we still have time to review.

This London period in place not everything's happened yet, and so there's a lot together there's an opportunity here for businesses to work across with other specialist tax teams and procurement roots and look at you know what costs can be mitigated.

Margaret Laidlaw: Yes. Thanks, Juliet. You can see the complexity around this. In terms of imports and exports, how are businesses remaining compliant?

Juliet Bailey: there's a couple of points to think about really for compliance. I think there's the operational elements about how you organize yourself as a business, and then, this is sort of quite basic: how you demonstrate your efforts, because in the tax environment it's almost not just what you do, but what you're perceived to do.

And so, starting with how you organize your business it's really necessary to take a holistic approach to compliance, and I think that's come out today. We've had all different people speaking, with what a different point to make, and it's necessary to look everything together, and then, I think, to go beyond the tax team and think ‘well, yes tax teams are great, aren’t they’, but you need to review a supply chain properly, you need your procurement team, you might need your legal team.

It's critical to involve them because you've got your commercial practice, and you've got your contractual position, and it's essential to point to a line in order to stay compliant. So, I do feel that compliance has got to run its way right through a business and every team.

Just going back to the point that I made: it's not just about actually being compliant; it's being visibly demonstrably compliant.

In many cases, we see that you can't actually get HMRC to confirm a position, and a recent example would be you might approach HMRC to say, ‘could I use this alternative evidence to recover my import VAT and HMRC will say that ‘we can't give you any response on that’ you just need to put it through on your VAT return and claim it back if you think that's right.

So, you can't get the assurance, you put it through your VAT return, but if that is selected for review then it's an entirely different HMRC contact, it's a review with officer. So, you're in a situation of thinking well it's difficult to get a view from HMRC to confirm you’re compliant, with got to keep on making decisions, making judgments.

And so really keep your paperwork in good order here. Whatever you've used to arrive at your decision could be really critical if the transaction is later reviewed to say, well, not just ‘here's the view we arrived at’, but ‘here's why’. Maybe we took advice, we did some research and actually we've come to a logical position, so I think they're the two points I'm seeing in terms of businesses staying compliant.

Margaret Laidlaw: Yes, I think that’s a good point. I like what you said about documenting your position when you’re submitting your returns. Thanks, Juliet.

I am going to just go around briefly and ask each of our speakers to give us their one area that they think that companies should be looking at.

George, could I start with you?

George Lagarias: Yes, so actually, I don't want to talk about my presentation. I want to talk about one of Dan’s points. Dan said that now might be the opportune moment to look ESG, and the general risks.

I humbly disagree. It's not an opportune moment. In fact, it's never an opportune moment. especially around all those risks that that we're facing.

So, there are two ways to deal with risk. One, you can take the recession I talked about and say ‘oh it’s recession and really we have a big risk out there and we don't need to deal with idiosyncratic risks.

Or you can be one of those people who deals with risks before they happen, and what I have to say, because I've done a lot of risk management when I was managing funds: crisis makes people comfortable, in the sense that they don't have to face their own problems.

‘Hey, you know what? Everybody's got problems nowadays. They're not facing idiosyncratic risks and sometimes it works out, but most of the time, they do not.

So, my comment is around risk. I know that in this environment, it might be inopportune to talk about risks, but you should really take Dan’s advice and deal with them.

Margaret Laidlaw: Okay, thanks George much appreciated. Ian, do you have a key takeaway for us.

Ian Goodwin: I think I’ve got two. One, if you've not looked at reviewing your rewards strategy. Essentially make some simple changes by looking at introducing things like pension salary sacrifice if you've not done so already. If you have done so, there might be some other areas that you could make some cost savings too – looking at cars, travel, etc.

Secondly, as we've said throughout looking at managing your risk and documenting things, making sure you thought about those compliance reviews that are coming your way.

Margaret Laidlaw: Great. Thanks, Ian. Dan, do you have anything to add?

Dan Breger: Yeah, thank you. Reiterating George and Ian’s points, it's around dusting off those risk management frameworks, but looking at the, not the risks on your doorstep, necessarily, but the ones which are a bit further out.

So, when we think about these events going on around the world, and we think about the Bank of England announcement this afternoon, and so on, it's about the ripple effect of that and what might that be for us by way of risk in 3, 6, 8, 12 months’ time, and can we start to manage that now as part of our strategic approach?

Margaret Laidlaw: Great point, thanks Dan. And finally, Juliet.

Juliet Bailey: yeah, I think, as everyone else has said, it's really: ‘get reviewing’. And, from an indirect tax perspective, the government's delayed introducing the controls four times now, so we're now delayed until the end of 2023.

And so, yes, things are going to change, but look, there is always time to look at this, and there's always time to restructure your business to review and find opportunities to mitigate costs. So, I think ‘opportunity, opportunity, opportunity’.

Margaret Laidlaw: Great, thanks, Juliet. I think that’s a good note to finish on.

Just in terms of some final points from me, this is the first of a series of webinars. We will send out details about the others, in terms of what we’re going to cover.

We’re looking at ‘selling your business’, we’re looking at private equity, we’re looking at debt funding. There are a lot of different areas that we’d like to cover over the following weeks.

We will also send you copies of the slides, and have recently issued our Mid-Market Newsletter, which a few of today’s speakers have contributed to. Also, if there’s anything that you’d like to speak to us about, please get in touch.

And, I suppose, just as a message from all of us: thank you for joining us today. Please do get in touch if you think that there’s anything that we can do to help or support you during these exceptionally difficult times.

Thank you everyone, I hope that you all have a good day.