As 29 March 2019 draws ever closer and Brexit withdrawal negotiations continue, the UK government has started to release a series of technical notices outlining the implications of a "no Brexit deal" on certain key topics and industries.
Noting that changes in business structuring, accounting and audit will be of interest to many businesses and individuals in the lead up to March, the government has now published technical notices on these subjects. They provide additional information to that set out in our insights on the impact of a no deal on UK companies and pan-European company accounts, published over the Summer.
Both notices say that the government intends, as far as possible, for the same laws and rules to apply as are currently in place. However, the fact that the UK will no longer be an EU member state means that this is not always going to be possible. Key issues to be mindful of from a UK company or branch, audit and accounting perspective include:
- As a UK citizen, if you own, manage or direct a company registered in the EU you may be required to meet additional requirements.For example, as to the nationality or residency of individuals allowed to act as senior managers/directors or limits on the amount of equity held by non-nationals.
- UK businesses that own or run business operations in EU member states are likely to face changes to the law under which they operate.For example, the EU member state involved may impose additional requirements on the business as regards real estate purchases or approvals to operate.
- EU companies that operate branches in the UK will become subject to the same information and filing requirements as any other current non-EU companies' branches.However, the additional requirements are not extensive.
- The legal personality and limited liability of UK companies which have their central administration or place of business in one of the remaining EU member states may not be recognised.This will depend on a member state's national law or international law treaties.So, depending on the laws that apply, it is possible that such UK companies will not have legal standing in the EU and shareholders might be personally liable for the debts of the company.
- UK investors in EU businesses may face restrictions on the amount of equity they can hold in certain sectors in some EU member states.
- As the UK will no longer be an EU member state, the remaining EU member states will not be required to give effect to cross-border mergers with a UK company (under the EU Directive 2005/56/EC – cross-border mergers of limited liability companies).
- European Public Limited-Liability Companies (or Societas Europaea) will no longer be able to be registered in the UK.Those already in existence will still be able to trade but, where they have not made alternative arrangements before March 2019, they will automatically convert into a new UK structure (detail awaited).Also after exit, Societas Europaea registered in EU member states will need to register their existing and any future UK establishments/branches with Companies House as any other overseas company is currently required to do.
- UK businesses with a branch operating in the EU will be required to comply with specific accounting and reporting requirements for such businesses in the member state in which they operate.Companies Act 2006 compliance may no longer be sufficient.
- UK companies listed on an EU market may need to provide additional assurance that their accounts comply with IFRS as issued by the IASB, in accordance with EU third country requirements.
- Where parent companies or subsidiaries are incorporated in the EU (not the UK), certain exemptions relating to the preparation of individual accounts will no longer be available to them.
- A transitional period in the field of audit will run until the end of December 2020.At this time, automatic recognition of an EU auditor's qualifications in the UK will cease (unless they have applied for continued recognition subject to passing an aptitude test).From that date, EU audit firms will not be recognised among the required majority of suitably qualified owners or managers of a UK audit firm.
- Audits of EU businesses seeking to raise capital by issuing shares or debt securities on a regulated market in the UK will need to be undertaken by an auditor registered with the Financial Reporting Council.
- Audits of UK businesses seeking to raise capital by issuing shares or debt securities on a regulated market in the EU will need to be undertaken by an auditor registered as a ‘third country auditor’ in the EU member state in which the market operates.
- In a ‘no deal’ scenario an individual’s UK audit qualification may no longer be recognised in an EU member state (except for Ireland).
Although these two technical notices relate to companies, BEIS has said that much of their content will also be relevant to other types of legal entities (as their legislation largely mirrors the legislation for companies).
For further detail, please refer to our insights and the two technical notices above, which set out useful "Actions for businesses and other stakeholders" guides.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions