Brexit has been in the news constantly over the last few weeks as UK and EU representatives try to hash out a deal. At the time of writing, Theresa May’s proposal has not yet been voted on in parliament – but whether the government as a whole agree with the deal or not, there are likely to be changes afoot when it comes to UK tax.
In this blog, we’ll explore how Brexit might impact businesses in the UK, outlining some of the broad changes our clients can expect, including:
- How corporation tax and VAT might be affected.
- What the legal implications are for tax.
- Things businesses should bear in mind when seeking accounting and financial advice.
Corporation Tax
Whatever happens with Brexit, it’s likely that corporation tax will see some substantial changes. For whilst corporation tax, income tax and CGT are nominally UK taxes, tax laws have been refined in previous years due to successful challenges at the Court of Justice of the European Union (which stated that existing legislation breached EU policies regarding freedom of establishment, free movement of goods and workers, and free movement of capital). Brexit should allow the UK government more freedom when it comes to regulation.
In general terms, tax experts feel that corporation tax in a post-Brexit environment will be relatively manageable; however, larger businesses (particularly if they have operations based outside of the UK, or if they trade internationally) will have to navigate issues of double taxation and increased rates. There has also been talk of a tax crackdown on international technology giants like Facebook and Google.
In addition, though the news that the corporation tax rate will drop to at least 17 (the possibility of further cuts has been floated in the event of a no-deal Brexit) has been met with enthusiasm, there is anxiety about how the UK economy will be able to afford such a measure.
VAT
VAT was first conceived of in France, and was adopted by the UK government as a condition of joining the EEC back in 1973 – and it is the type of tax that will most obviously be affected by Brexit. It’s extremely unlikely that the government would choose to do away with VAT altogether, even in the event of a no-deal Brexit (indeed, the government has recently published guidance on what would occur in those circumstances, which we will discuss in a future blog). However, the picture is complicated for various reasons: not least when it comes to import tax (without a VAT deal with Brussels, importers will be forced to pay VAT upfront – in cash – and recover the money later, which could be infeasible for some UK businesses) and cross-border issues (only remaining in the single market will allow free movement of goods across borders).
Whatever happens, HMRC will be under pressure to deal with the changes, and it’s imperative that all VAT-registered businesses instruct a tax adviser who will be up to date and qualified to assist without delay.
Tax Law
Financial reporting has changed substantially in recent years, with some of those alterations coming directly from the EU. The Flat Rate Scheme – for instance – has impacted greatly on the way that financial reports are collated. However, further changes are certain under Brexit, as the UK government will no longer be required to enforce EU directives. The UK government has already expressed their wish to remove EU directives that do not benefit UK businesses, meaning that legislation which simplifies matters may be on the way (but what such legislation would entail, and when it will be brought into force, remains to be seen).
Legal infrastructure is also set to change dramatically and this will have a bearing on tax-related legal proceedings. After the UK has left the EU, the highest legal power will be the Supreme Court, rather than the CJEU. There are questions around how this will work in practice: for whilst the Supreme Court will have to respect CJEU decisions which were made before Brexit – and will handle any new tax-related matters without the interference of the CJEU – the setup for ongoing matters (or new cases referred to the CJEU during the transition period) is currently unclear.
Much about Brexit is uncertain – but one thing that is certain is businesses will require well-qualified, experienced and reliable accountants and tax advisers to handle the upcoming changes. As well as providing a comprehensive range of options – including services for expats and cross-border taxation – our knowledgeable team are able to provide ongoing support specific to Brexit, ensuring that your business interests continue to prosper. Contact IBISS & Co today to arrange your free consultation.
