Tax after the EU referendum

EU_UK_FlagsFollowing the EU referendum on 23rd June, we have seen plenty of opinions, positive and negative, on how leaving the EU will affect us.  We are seeing changes in the political arena, but there will not be any immediate changes to the legal and regulatory environment.  The government will not be holding an emergency budget, although there could be one in or soon after October.

Taxation is largely a member state competence, and changes to taxation when the UK leaves the EU are likely to be less significant than other policy changes.  In terms of direct taxes (income tax, corporation tax) a number of EU directives have been incorporated into UK law, and they will continue in place. If we were to become members of the European Economic Area, of which Iceland, Liechtenstein and Norway are current members, then we would have similar sorts of tax obligations as we currently have as members of the European Union.    Indirect taxes are slightly different – especially VAT.  VAT falls under a substantive body of EU law which establishes common rules across all 28 member states.

VAT

Businesses selling and/or buying goods or services to/from other EU countries are likely to be the ones most affected by the UK leaving the EU.  We don’t yet know exactly what will happen when the UK leaves the EU, but the following changes are possible:

  • Abolition of Intrastat for movement of goods to and from the UK;
  • Abolition of EC Sales Lists for sales from the UK to the remaining EU countries;
  • Introduction of import and export rules for supplies between the UK and the remaining EU countries;
  • Increase in duty deferment facility to cover import VAT and possibly customs and excise duties relating to imports from EU countries;
  • The distance selling thresholds will no longer apply for small value of exports to remaining EU countries;
  • Changes to the Mini One Stop Shop – VAT will still need to be charged and accounted for in relation to affected supplies to customers in the remaining EU countries. This may mean registering for the non-Union Mini One Stop Shop scheme in a remaining EU country if HMRC is unable to continue operating a UK scheme;
  • Refunds of VAT incurred within the EU may become more difficult, having to rely upon the 13th Directive refund scheme;
  • EU VAT law and rulings of the CJEU will cease to have direct effect, with the UK law and courts becoming the ultimate;
  • In theory, VAT rates could change up or down, including items currently subject to VAT at 5% could becoming zero-rated, although such changes are not currently permitted under the UK VAT Lock legislation;
  • The tour operators’ margin scheme could be changed or abolished.

VAT is an important source of revenue for the government, accounting for 17% of all government receipts, so we are unlikely to see significant changes to rates or reliefs.

Chancellor’s summary

In his statement the Chancellor said the following: “As I said before the referendum, [leaving the EU] will have an impact on the economy and the public finances – and there will need to be action to address that. Given the delay in triggering Article 50 and the Prime Minister’s decision to hand over to a successor, it is sensible that decisions on what that action should consist of should wait for the Office for Budget Responsibility (OBR) to assess the economy in the autumn, and for the new Prime Minister to be in place.”

Business Interests

A new business engagement inter-ministerial group, chaired by the Business Secretary, Sajid Javid and bringing together ministers from across government to co-ordinate engagement with the business community, was established on 30 June 2016.

The new group will provide an opportunity for ministers to discuss the views, thoughts and concerns from large businesses of all types and in all sectors across the UK and ensure their concerns are represented. It will feed into the new EU Referendum Unit established within the Cabinet Office.

Secretary of State for Business, Sajid Javid, said: “Now more than ever, businesses need certainty so it’s vital that the government maintains an open and continuous dialogue. We must work together to make sure the world knows that the UK is still open for business and remains an attractive place with which to trade and invest. Working with ministers across government, I will make sure businesses have the information they need and work with them to identify opportunities as they open up.”

Given the challenges ahead, the inter-ministerial group will provide an opportunity for ministers to come together and make sure they are providing businesses with the information they need and how they can limit the uncertainty in the transition period of the UK’s exit from the EU.

Small Business

The needs and concerns of small businesses, following the referendum, will be represented by several member organisations including:  the Federation of Small Businesses (FSB); The British Chambers of CommerceThe Confederation of Business IndustryThe Institute of Directors, and professional associations including the accountancy and tax professions.

Referendum conclusion

The conclusion is that, at present, there is no conclusion. The referendum has not triggered any immediate changes to regulations and legislation, so we carry on as normal.