Deloitte launches volume 2 of its whitepaper series explaining the impact of VAT on Real estate and Construction, Tourism and Oil and Gas
To help businesses in the GCC understand the potential impacts of the implementation and operation under VAT, Deloitte Middle East has been issuing a series of whitepapers designed to provide a greater understanding of the impacts of the tax on specific industries.
Deloitte has now launched the second volume which contains insight into the impacts of VAT on the real estate and construction, tourism, and oil and gas industries. The second volume also provides key considerations for the appropriate structure of an internal VAT function based on a European benchmark in collaboration with the specialist global indirect tax recruiters Beament Leslie Thomas (BLT). Finally, this volume also discusses technology considerations with the aim to reduce the uncertainty for businesses and to highlight the key areas that organizations should focus on as they embark on their journey to VAT readiness.
“With only a year to go to the planned date of implementation of VAT, businesses operating in GCC countries need to urgently start focusing on getting ready. Our experience, in the recent implementation of VAT in Malaysia, is that the area with the longest lead time is technology, and so businesses would be well advised to commence planning any major system changes to their ERP in the next few months in order to have a chance to be ready by 1 January 2018.” explains Justin Whitehouse, Deloitte Middle East VAT leader. “Businesses must therefore ensure relevant employees have the appropriate skills and knowledge for their roles, through appropriate training and recruitment.”
VAT impact on the real estate and construction industry
One of the main concerns surrounding VAT is in its application to the property development and construction industry. This is because the range of transactions underpinning the planning, construction and sale of commercial or residential real estate is varied and often highly complex which creates the need for an extensive suite of bespoke VAT rules to cope with these challenges.
The development and construction sector is of huge importance to the GCC as a whole but the scale of many businesses operating in the sector, and the cost and revenue throughput that they manage, by nature create an environment of risk associated with poorly understood or managed VAT obligations.
‘The construction and real estate sectors are complex from a VAT perspective and this carries significant VAT risks especially in respect of long term contracts and therefore businesses are well advised to consider the impact of VAT as soon as possible’ said Nurena Tarafder, Deloitte Middle East real estate and construction industry VAT leader.
Commercial risks are the most significant of the challenges listed in the paper that need to be addressed including lead times on major projects and Registration of subcontractors.
VAT impact on the tourism industry
There are many very distinct functions that are loosely categorized as part of the tourism industry, including airlines, travel agents, tour operators, accommodation and other local service providers. Each of these will be affected in one way or another by the application of VAT within the GCC.
“Businesses in the tourism sector are likely to find the impact of VAT wide ranging and may find themselves with multiple VAT registration obligations and significant compliance requirements as a result” according to Bruce Hamilton, Deloitte Middle East Consumer Business Industry VAT leader.
VAT implementation on oil and gas industry
Many in the sector anticipate that there may be a VAT relief applying to the oil and gas sector in some form – but even if this is the case, VAT is still anticipated to have an impact on all businesses.
“Oil and gas companies will find VAT a significant planning and process issue but, in particular, being a capital intensive industry they need to think carefully about working capital issues and how long refunds of input VAT credits are likely to take,” according to Matthew B. Parkes, Deloitte oil and gas expert.
To view the full whitepaper, please visit the following link: http://bit.ly/2jpuVDY
Why the future of work hinges on a mutually beneficial employer-employee contract
By Stuart Hearn, CEO and founder of Clear Review, the leader in performance management
It feels like there’s been almost continual talk of the new world of work, and what the future of employment will look like, since the first day of lockdown. It’s true that it was a huge upheaval for many organisations that previously had been resistant to all but the most traditional working environments – nine to five, in a fixed office, with company-issued IT.
That said, the pandemic and its restrictions did not actually introduce a new way of working; they merely accelerated it, on a scale and at a pace no one could have foreseen.
So, in many ways it is less that there has been a change, and more that the change has happened so quickly. Had it continued gradually, then we would have seen more businesses, and managers, adapt slowly to the concept of remote teams as the norm, with all that it entails.
As it is, many leaders have been left with having to recalibrate their approach to feedback and management, while still dealing with the spectre of the pandemic and its threat to business continuity. In the early months, it was perhaps acceptable to allow certain elements of management, such as employee appraisals, to slip. Now, as what was once new becomes normal, this has to be addressed. Why? Because at a time when revenue streams are crumbling, engaged employees are critical in delivering results – one study found that “highly engaged teams show 21% greater profitability”.
Managing changing realities
Employers are therefore having to balance keeping employees engaged with a number of realities which are rapidly changing what we thought the future of work would be.
Firstly, there is remote working. Rolling lockdowns and local restrictions are going to be a short-term constant. Some employees have embraced it; others will feel more removed and under greater stress. It will be up to leaders to identify and address these polar opposites within their own teams.
Secondly, employers need to realise the impact technology, and in particular artificial intelligence, is going to have. Those businesses that were more digitally mature fared better in the early stages of lockdown; as everyone races to complete their own digitisation, employees are going to be faced with a continuous cycle of change. What’s more, while the process of transformation has never been this fast, it will also never be this slow again. That is a bewildering concept, and one that managers need to factor in when handling employees.
It all points to one undeniable – that the employer-employee contract is irrevocably changing.
A new employer-employee contract
What do we mean by the employer-employee contract? This is not the terms of employment; rather it is the mutual understanding that the employee will perform tasks as designated by the employer, at a set place, for a set amount of time, in return for renumeration and adequate support. The support might be the right equipment; it could, and should, include development, whether that’s with formal and informal training, progression plans or ongoing review programmes.
That all worked fine when everyone was in the same office, at the same time, every day. Now that isn’t the case, the old ways of managing, of supporting employees and of helping them develop don’t work. Added to this is the rapid pace of change previously covered and it is quite simple – using what worked in the past will not work in the future.
What employers, and more specifically managers and leaders, need to do is actively change the way they support their teams. The informal chats in the kitchen or between meetings no longer exist, so the monthly one-to-ones are suddenly too far apart to get a true sense of how employees are doing, both in terms of their performance and how they are feeling.
Time to change focus
As part of this, there needs to be a change in the focus, away from what employees are doing and towards what they are producing – so from inputs (such as being ‘in work’ at a certain time and for a set number of hours) to outputs. It is a shift towards a more continuous cycle of review and feedback, and it is two way – rather than having a set meeting, both employer and employee are sharing outputs, progress and feedback constantly. In doing so, employees can start to be measured on how they are contributing to the performance of the business, and their training and development tailored accordingly.
As the way we work has changed, so our relationship with work, in the form of the employer-employee contract, is changing too. As businesses set themselves up for an uncertain future, they need to reassess and realign how their employees are working, and tailor the way workforces are managed and supported accordingly. It is the only way employers will be able to retain and develop their teams to handle whatever comes next.
What is the Job Support Scheme, and how does it work?
By Kate Palmer, HR Advice and Consultancy Director at Peninsula
On 24 September 2020, the Chancellor, Rishi Sunak, announced that after the Job Retention Scheme (JRS) ends on 31 October, employers will be able to benefit from the new Job Support Scheme (JSS). The new scheme will be available for employers from 1 November 2020 regardless of whether they have made use of the Job Retention Scheme or not and will be in place until 30 April 2021.
Under the Job Support Scheme, with further clarification having been released on 22 October 2020, the Government will be able to help employers who are suffering from business downturn as a result of coronavirus restrictions or who have been told to close completely. It is separated into two provisions: JSS (Open) and JSS (Closed).
To access the JSS (Open), employees must work for at least 20% of their regular working hours – in ‘viable’ jobs – with employers covering the wages for those worked hours. For hours not worked, employers will be asked to contribute 5% of employees’ wages while the Government will contribute 61.67% of wages (for hours employees do not work), to a monetary cap of £1,541.75 per month per employee. The scheme will be open to small and medium-sized firms across the UK. However, for large businesses to qualify for the JSS (Open), they will have to meet a financial assessment test to show that their turnover is lower due to experiencing difficulties from coronavirus.
On 9 October 2020, the Chancellor first announced the expansion to the original JSS which is now being referred to as JSS (Closed). From 1 November 2020, all businesses across the UK who are required to close as part of local/national lockdown will receive wage assistance through JSS (Closed) for employees who do not work for a minimum of seven calendar days. A financial assessment for large businesses will, however, not apply. The expansion is being rolled out to run until 30 April 2021 with the Government paying two-thirds of each employee’s salary, up to a maximum of £2,083.33 a month per employee. Employers will not be required to contribute towards staff wages but will have to cover National Insurance Contributions and pension contributions.
For an employee to be entered into either of the two versions of the JSS, they must have been on the employer’s PAYE payroll between 6 April 2019 and 23:59 on 23 September 2020. Which means that a Real Time Information (RTI) submission notifying payment to the employee to HMRC must have been made at some point from 6 April 2019 up to 23:59 on 23 September 2020. The guidance confirms that JSS grants will be paid in arrears to reimburse the employer for the Government’s contribution. Claims can only be submitted in respect of a wage cost actually incurred in any given pay period after payment to the employee has been made, and that payment has been reported to HMRC via an RTI submission.
Claims can be made online from 8 December 2020, and reimbursement will be made every month.
B2B plays a big role in our economy, but how can it contribute to our recovery?
By Richard Parsons from True, creative B2B marketing agency, discusses the current state of marketing and looks ahead to what the future might bring.
The average consumer will likely be unaware that more than half of the companies listed on the FTSE 350 operate purely in B2B transactions. Not only that, but 50% of our economy is generated by B2B transactions and 82% of companies derive some or all of their income from B2B. There is also a global B2B trade surplus, unlike in B2C. The significant conAltribution of B2B is routinely missed but could hold the key to economic recovery.
The famous essay “I, Pencil” by Leonard E. Read, founder of the Foundation for Economic Education, lays out the different skills, materials and jobs utilised in the production of a pencil. An inexhaustive list includes cedarwood from Oregon, logs from California, graphite from Ceylon and clay from Mississippi. The list was so comprehensive that Read even named the lighthouse keeper signalling the ship in and the factory worker sweeping the floor as part of the employment dependant on the pencil.
B2C might dominate brand awareness for obvious reasons, but what is less obvious is it’s inescapable foundations in B2B. These companies play a vital role in our ongoing economic recovery and – drawing on lessons learned during previous economic challenges – here are some of the trends that we expect to play out over the coming months and into 2021.
Below the Line to Above the Line
Even in normal times, businesses tend to place a skewed emphasis on lead generation and brand conversion when they should be focusing on the top of the funnel. Typically, 90% of marketing spend is allocated to short-term lead generation, which translates as telemarketing and mailshots. This balance should be much closer to 50%, with the remaining 50% spent on building brand equity. A shift from Below the Line to Above the Line is essential if brands want to recover well.
Lead-generation tactics do have a role to play. Still, the B2B industry can be guilty of neglecting emotional marketing in favour of rational campaigns, and here they lose their power to attract new interest. The B2B Brand Index Study – the most extensive global study of its kind – established that creative campaigns are 12 times more efficient at delivering business success.
While there are clear differences, B2B and B2C also share certain similarities. For instance, brand awareness among a target audience will always be a fundamental part of securing revenue. A B2B decision-maker will not be as impulsive as a consumer, for example, choosing Coke or Pepsi, but it is still vital that your brand is well known.
This brings us to the Rule of Three – a well-documented concept of brand market share and consumer decision making in a developed market. When looking for the answer to a problem, a prospective customer will have around three known brands that could solve the issue immediately spring to mind as a result of exposure to memorable campaigns and sustained awareness building. Further research will often expand this pool of options to around ten brands, but when it comes to the crunch, one of the original three will win the purchase between 70-90% of the time.
Value for Money
Marketing budgets have been understandably pared back this year. In an April 2020 survey, 90% of respondents said their budgets were delayed or under review. The full economic impact of the COVID-19 is not yet clear, but we are a long way from normal market confidence, and many businesses are increasingly cautious when it comes to allocating marketing spend.
We know that this approach is wrong. According to System1, advertising ability to connect with people remains as strong as before, and media consumption has risen during lockdown. The CPM of Facebook advertising has gone from $1.88 in November 2019 to $0.81 in March 2020. In short, the ROI for marketing spend is better now than before and so those who can spend, should.
The events industry has clearly been badly hit, with months of planning, investment and time redundant. But seminars can become webinars and conferences can become virtual, and while this is small consolation for a devasted industry, virtual versions are generally cheaper than in-person events. This will leave a surplus of budget previously earmarked for events which means a reallocation of money to other facets of marketing to stimulate new revenues and a better recovery.
Think Long Term. Hold Your Nerve.
Institute of Practitioners in Advertising case studies show that brands that maintain marketing investment in recessions grow 4.5 times faster than brands that cut spend. Those that cut spend also struggle for longer and take five years to recover revenue. A marketing black-out might alleviate damage to bottom lines in the short term, but it will breed serious problems and long-term profit loss.
Of course, many brands will pursue the short-term fix and cut marketing costs, and this presents an opportunity for those willing to be bold. It might not feel like a wise investment as profits tumble alongside the rest of the sector but maintaining or increasing spend will allow brands to outflank competitors and for smaller brands to increase their share of voice and gain ground on more cautious industry leaders.
It remains to be seen how short-term marketing cuts will pan out in the mid to long term, but changes are indeed afoot. Crises are catalysts for change and, like any crisis, the current one will have winners and losers. Brands that hold their nerve, innovate and invest in their recovery are likely to see the benefit in the long term. The current economic uncertainty is accompanied by changes in other aspects of the way we live, work and travel. Rather than a threat, it presents an opportunity.
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