Johnston Carmichael: Net-zero and technology present opportunities for businesses in 2022

As the new year gets underway, Johnston Carmichael’s experts look ahead with some optimism, despite the challenges, predicting continued opportunities as the firm adopts a low carbon economy, and increased adoption of technology creates efficiencies.

Johnston Carmichael: Net-zero and technology present opportunities for businesses in 2022

Andrew Walker, CEO

2021 was another challenging year for Scottish businesses, with the latest variant of COVID-19 prompting fresh uncertainty, while supply chain issues and labour shortages remain ongoing.

Andrew Walker, CEO, said: “After getting back onto a stronger footing following the success of the initial vaccination programme, businesses face further challenges and uncertainty as governments consider how to slow the Omicron variant. Hopefully disruption will be short lived, and I am encouraged by the remarkable resilience shown by our SMEs throughout the pandemic thus far.

“It is key that owners and operators continue to plan and react decisively. Change will present growth opportunities such as those generated by the energy transition and wider move to net zero following COP26. Increased adoption of technology is introducing ever greater efficiencies, helping businesses to be more efficient with better data, providing real time information and freeing up people to concentrate on what they do best.”

Adam Hardie, partner and head of food & drink, said that global food commodities prices have increased to their highest level for 10 years and all the indicators are that food prices will follow in 2022 for consumers.

He continued: “In recent years there has been significant consumer demand for improving the environmental footprint of food, and at COP26 in Glasgow, we learned that sending just one kilogram of food waste to landfill produces the same carbon emissions as landfilling 25,000 500ml plastic bottles - food waste is a bigger contributor to climate change than plastic waste!

“Many industries including food & drink are experiencing shortages of labour and that will continue into 2022. Brexit has not helped, but COVID has been the principal driver as across the globe people have re-evaluated their working lives.

“Finally, there has been a check in pace of growth of Direct to Consumer (D2C) however, it remains an exciting route to market and remains bigger than pre-epidemic level.”

Shaun Millican, partner and head of technology & life sciences, added: “Following COP26 there is now increasing public awareness of the challenges we face and that we cannot rely on governments to get us to a net zero position. There is a wall of capital ready to be deployed into technological solutions and increasingly we are seeing entrepreneurs shape their proposition to one that will support a move to net zero. We expect this will continue to pick up pace and that green energy, carbon capture, food production/mileage and the wider circular economies will accelerate quickly in 2022.

“The key challenge for Scotland will continue to be access to talent. Remote working enables global recruitment which is both an opportunity and a threat. We are seeing clients recruit globally but as the return to normality continues and remote working morphs into hybrid working, we think that the competition for talent will intensify.”

Offering his insight, Ewen Fleming, partner and head of financial services, said: “Following significant investment in technology, we expect a continued increase in digital services but more focus on the customer experience, and how to use better customer data to engage on a personal level with those who transact but are otherwise self-sufficient digitally. At the same time there will be more scrutiny from regulators on the financial services sector’s increasing reliance on outsourcing and the systemic risks this poses – most cloud providers are owned by big tech that sit outside the current regulatory regime.

“Salary spiral, the introduction of four-day weeks and ongoing adoption of hybrid working could create a war for talent, with acquisitions to obtain employees and not just the business’s customers and capabilities.

“Consolidation will be a key focus of M&A deals, and a huge amount of work will be required to realise the benefits of scale, particularly in wealth/ financial advice distribution and asset book purchases.”

Mark Stewart, partner and head of energy, infrastructure & sustainability, commented: “COP26 was a success in providing the platform for systemic change across government, business and us as individuals, but a paradigm shift in behaviour is required and if that does not come voluntarily, I think we can expect to see a carbon tax introduced to penalise those who don’t get on board - less carrot, more stick.

“In terms of other key things to watch in 2022, transmission development, which is vital for connecting new, often remotely located renewable energy capacity (particularly offshore wind) to electricity consuming centres, will be a priority. Solar will make a return as new configurations and business models are developed and advanced robotics will be increasingly utilised to enable accuracy and maximise resources, allowing difficult and potentially dangerous tasks such as remote inspection and maintenance of offshore wind to be carried out safely and efficiently.

“As the world’s biggest companies are compelled to become more accountable for their climate actions, with the establishment of the International Sustainability Standards Board and a new financial reporting framework from 2022, SMEs will also need to prepare for enhanced climate and ESG reporting. Look for the growing trend in appointing Chief Sustainability Officers to drive this at Board level.”

Jenn Stewart, business advisory director and head of rural, added: “Food production, climate change, biodiversity and Brexit continue to be the key challenges and opportunities facing our agricultural sector. Rural and farm businesses are still uncertain on what future Government support schemes will look like. Indications continue to suggest that unconditional support will move to conditional support, certainly an element of it, with targeted outcomes for achieving biodiversity gain and a drive towards low carbon approaches.

“My advice for farmers and rural businesses is to understand their baseline data so that they can be recognised for the progress they make moving forward. By making small changes now and by adjusting systems and operating as efficiently as possible, whilst keeping an eye on the costs, agricultural business should be prepared for the opportunities and challenges of a sustainable and profitable future.”

Susie Walker, partner and head of tax, summarised what lies ahead for 2022, she said: “HMRC continue their drive with Making Tax Digital (MTD) with all VAT registered businesses required to comply by April 2022. MTD for Income Tax Self-Assessment, which will now be implemented in April 2024, was delayed by a year to focus on HMRC’s basis period reform. The basis period reform will change the trading profits that are assessed to tax in a particular tax year. This will impact unincorporated businesses including partnerships and trusts, and transitional rules will apply. HMRC’s aim is to simplify the current rules so that accounts are aligned with MTD tax reporting to HMRC on a real time basis. This will mean that accounts will need to be prepared as the year progresses, with numbers reported to HMRC throughout the year.

“Meanwhile, on 15 December 2021 a House of Lords committee issued a report recommending that more work needs to be done before these changes are introduced and criticising the lack of consultation. It recommends that MTD for businesses with a year end not aligned to 31 March/ 5 April is deferred until at least 2025/26. We wait to see if HMRC back down.

“With the Government looking over the horizon to the next General Election and a sway in public support, reports of possible reductions in income tax, VAT and inheritance tax were recently covered in the press. What this means for taxpayers – and in particular those paying income tax north of the border where the Scottish Government set the rates and bands – will be one to follow. We were encouraged to see the Government back UK R&D and further tax incentives are very likely to be introduced towards green energy investments.

“A new tax for 2022 may affect your business – Plastic Packaging Tax comes in from 1 April 2022 and the tax basis is set to encourage use of recycled materials in packaging. If you haven’t considered how this will impact you, we’d recommend you begin looking at it now and consider what can be done in advance.”

Finally, Ross Leckridge, chartered financial planner and head of proposition, concluded: “The key issues for financial planning in 2022 are likely to be volatility in the markets, changes to tax and legislation and helping our clients adapt to changed circumstances. Since the crash in late February to mid-March of 2020, markets have rebounded strongly and portfolios are generally ahead of where they were pre-pandemic. But inflation is rising, interest rates are expected to follow, and Government support is subsiding. These are challenges which businesses will need to meet head on if investors are to continue seeing positive returns.

“Many people believe that taxes will have to go up to pay for the significant financial support that’s been given over the last near two years; we just don’t know which ones or when. We’ll be keeping a close eye on the next Budget in March to see if the Chancellor starts making the changes which will tip the scales and balance the books.”

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