Believe it or not, it’s almost two years since the UK voted to leave the European Union. While the date has been set for March 2019, it’s still far from clear exactly what impact Brexit is likely to have on the country. However, we can be sure that Brexit will definitely impact business tax policy. Here’s our take on what to expect.
General and corporate tax
It’s likely that most issues affecting corporation tax will be manageable. There will be some complications surrounding withholding tax, but most of these will likely be picked up within tax treaties.
There is a high level of uncertainty about UK corporation tax decreasing to 17%, as it’s not clear how the economy will sustain this. A senior tax adviser at leading auditing firm RSM said: “I think two potential changes to consider are: first, what will the corporation tax rate be; and second, are there any tax reliefs where we can be more generous once we’ve left the EU [to boost our competitiveness] because state aid rules currently prevent how generous we can be.”
Technology tax
There could be substantial alterations to the way global tech conglomerates are taxed. Experts are divided on how this will pan out, but there could turnover based tax on tech companies regarding their UK sales. This idea is contentious, and topical as on 21 March 2018, the EU proposed a 3% tax on EU business to business revenues of tech giants including Facebook, Google, Uber, Amazon, Apple and Airbnb.
Whether the UK follows the EU independently and does the same remains to be seen. Many think it would be simpler to increase VAT to raise revenue, instead of bringing in a turnover tax.
Brexit will certainly mean that the UK can choose its own path when it comes to technology companies such as Google and Facebook, but we’d be on our own in tackling the issue. According to some reports Brexit could cost up to £350 million per week, (the same amount the Leave campaign promised Brexit would save.). If the UK needs to, but can’t borrow more or cut enough expenditure, then additional revenue will likely have to come from increases on tax. As the tax base is decreasing, this presents a problem. Either more people will have to pay higher tax, or new taxes will have to be levied.
Legalities impact
The legal process will change after Brexit, including the highest court in the country. After Brexit it will be the Supreme Court, rather than the Court of Justice of the European Union (CJEU). The Supreme Court will still have to adhere to CJEU decisions that were taken before Brexit, it’s unclear as to how this will affect tax cases that are currently making their way through the system.
Most changes to tax, including VAT, will be introduced post-Brexit through secondary legislation. This means Parliament will have to scrutinise it thoroughly, which is unlikely to always happen.
The customs union and VAT
These are the most obvious taxes that will be affected by Brexit. Customs duty is complex as it’s not clear whether HMRC’s systems can cope with the changes that are likely to happen. If the UK decides to stay in the customs union, then it will mean no tariffs on goods. However, there will still be issues regarding cross-border movement, as leaving the single market means no free movement across borders.
Post-Brexit, goods coming into the country will be charged with import VAT. This will mostly be paid up front and can’t be recovered. As the UK imports a lot of goods from the EU, this will mean problems in terms of cashflow for many businesses.
Any business based in the UK trading with the other 27 EU member states will experience changes, ranging from the likelihood of extra VAT costs and customs duties, to an increased amount of red tape at the UK border. Experts are speculating about how long it will take goods from outside of the UK to clear customs, and some have estimated the likelihood of a 21-mile tailback along the M20 due to the extra time needed.
What about the positives?
It seems clear that there will be more costs post Brexit. But there are also positives?
Experts think so. For example, when the UK is out of the EU, businesses won’t have to fill in EC sales lists and instrastat declarations, as well as some other admin, which will make things easier. There are also positives for VAT too.
At the moment, companies that provide financial services within the EU can’t recover VAT as their supplies are exempt. However, supplies made by companies to customers in non-EU countries are counted as outside VAT, and therefore it can be recovered. When the UK leaves the EU, technically the whole business world is outside VAT. However, the Treasury has already been loath to accept this, as it would cost the Exchequer too much money.
Golden opportunity
If nothing else, Brexit gives the country an unprecedented opportunity to look at our tax system, and what we want for it. In some ways, it’s a golden opportunity ruined somewhat by parliament having neither the time nor the inclination for considered reform. Instead any future tax changes will probably be reactive.
On the whole, Brexit gives us more opportunities than dangers to design a system of tax that works for the UK. Let’s hope this is what we can expect post-Brexit.
If you’d like to talk through your company’s tax issues, and ways to save and make money, talk to the team at Turner Little.
About Turner Little
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