Brexit – The Tax Effect
With the outcome of Thursday’s Brexit vote, Britain is heading towards a monumental change in every facet of life. The world of business and import taxes and tariffs face potential upheaval. Although officially Brexit will not come into place for another two years, companies and multinationals alike will be ensuring their international deals are in order ready for the split. We have taken a look at the possible outlooks.
VAT, excise duties and other indirect taxes
VAT is chargeable on most goods and services within the EU. The UK currently has certain relaxed laws when it comes to V.A.T which allows for the zero ratings of certain classes of goods. In the single market there is currently harmonisation with customs duties on imports, the EU protects these taxes from being levied against rising capital.
By regaining sovereignty over the UK tax laws, the UK can essential re-write the import VAT tax laws to its own benefits however this can come at a cost, as the EU states can now place restrictions and tariffs that were originally protecting imports such as duties. It is entirely possible that very little will change due to the fact that a sizeable park of the UK’s tax intake is taken from VAT forms. Therefore, changing drastic measures could threaten this important earner for the country.
If the UK joins the European Free Trade Association, we will likely benefit from a special customs procedure that suspends customs and excise duties and VAT on goods that pass through the UK en route to an EU destination. HMRC will have more freedom to apply stamp duty on certain share issues and any further tax reliefs could be negotiated via bilateral trade agreements.
A sensible contingency plan would be for multinationals to review their international strategies to see if they can use UK group companies as a gateway to the EU. By using the two year Brexit notice period to devise firm contingency plans, companies have enough wiggle room to decide what is the best solution when dealing with imports from Europe.
Tax on company profits and capital gains
Brexit will end the UK’s obligations to reduce the burden of direct tax for companies conducting business within the single market. Similarly, to VAT and imports. The intertwined nature of European laws that encourages and protects British interests are likely to be left relatively untouched for fear of reversing any good work done. Additionally, tax treaties have a significant crossover with some of these riles and will remain in place post-Brexit. However, these taxations will inevitable become more complexed for MNE’s that have groups in both Europe and the UK. The UK will lose any protection against discriminatory tax measures which could be imposed by other EU member states which will subsequently place the UK in a tougher position commercially and remove any strategic benefit for investors to relocate to the UK.
The reality of the Brexit vote is that although tax laws will become more complicated to respect, it will be in Britain’s best interest to keep close ties with the EU. Any future EU measure will likely have an impact on Britain, we will however, be unable to impact these future measures as we have lost our seat at the table.