Brexit – what are the tax implications?
May claim that the main reason for voting “leave” was to restore fiscal sovereignty to the UK. This enables us to set our own laws and us within business that biggest areas that will effect us as tax law.
We have seen many recent tax changes forced on us by the EU, such as the extension of Furnished Holiday Letting treatment to EU properties and the extension of EIS and EMI to companies with a Permanent Establishment in the UK instead of trading wholly or mainly in the UK.
But what changes may Brexit bring upon us?
The biggest changes are because of the domestic changes.
New Chancellor, a new tax strategy?
George Osborne, a leading member of the “remain” campaign, pledged to cut corporation tax to encourage investment in the UK in response to the referendum result. In an interview with the Financial Times, the former chancellor said he would reduce the rate to below 15%, although he did not mention any timescale and did not remain chancellor post Brexit.
However, with the appointment of Phillip Hammond as the new Chancellor it will be interesting to see if he will adopt a similar approach to corporation tax.
VAT was increased from 17.5% to 20% as one of the austerity measures in order to bring in more cash to the government to allow them to pay down some of the ludicrous debt our nation had mounted. A reduction in VAT will not be driven by European policy and we will no longer look to align our ‘sales tax’ with that of other members to make cross border transactions equitable.
In Budget 2016 it was announced that VAT would raise £138bn revenue for the UK Treasury in 2016/17, second only to income tax and about £100bn more than corporation tax. Therefore, it is expected that VAT or something equivalent will remain in place as an important revenue raiser for the UK, but the UK will in future have more freedom to set VAT rates. On the plus side, more zero-rating may emerge, whereas on the downside VAT may be raised above 20%, to cope with a possible recession and to generate additional revenue.
The biggest VAT impact will be the change to Intra-EU trade. At the moment B2B transactions are zero rated for VAT purposes. In future such sales will be imports into the EU and subject to EU VAT, which has a number of potential consequences. On the plus side, there will be no more Intrastat or European Sales Lists (ESLs) for UK business to complete. However, businesses and their advisers will need to consider the following points:
- Will a local EU VAT registration be required?
- There will be increased freight agent costs of arranging imports and exports. There will be a requirement to “enter and clear goods”;
- Whilst UK businesses should still be able to rec
However, it is well known that it will take 2 years following the UK’s notification of Article 50 before we leave the EU. So until then, businesses will trade as normal, with business to business trade (“B2B”) in the EU being largely VAT and Duty free.
Possible Customs Duty changes
This potentially has a major impact and very much depends on the negotiation of a Free Trade Agreement (“FTA”) with the EU. Without an FTA, the normal World Trade Organisation tariffs apply.
For example, for a UK car manufacturer selling cars to its’ French subsidiary would result in a 10% duty tariff, being imposed on the transaction. Therefore, an FTA is critical to businesses with EU supply chains.