The 2016 UK Referendum on Britain’s membership of the European Union was a vote that stunned the world. With many expecting the British public to vote with what they knew, the UK faces a huge leap into the unknown as the government negotiates an exit deal ahead of the March 2019 leaving deadline, set by Theresa May.
It has been almost two years since the UK voted to leave and the ripples of its consequences are starting to be felt. However, the uncertainty of what will happen next looms large over the country. Everything is expected to change in some way in the next few years. One of those aspects is the UK tax policy – especially taxes on business. Currently, it matches basic law set out by the European Union give or take certain set rates but the British government will have to decide how its policy should be once we are on our own. 3 Wise Bears takes a look at how Brexit might affect tax policy in the UK.
Will Brexit affect corporate taxes?
The general feeling is that tax on corporations will be quite manageable but with some concerns over those companies withholding tax, there’s a debate on what the corporation tax rate will be post-Brexit. There are some who think that the rate will be taken down to around 15-17% from 20%. However, such an action could be dangerous. Could a UK economy really afford to be that generous at the beginning of a burgeoning market of uncertainty? With a need for a competitive market, outside of the EU, the government has to balance the choice of corporation tax with how generous it can be towards businesses. With current state aid rules preventing any excessive generosity, it is a balance that needs to be finely tipped.
The biggest impact on corporation tax is likely hit the technology giants, who have benefited from tax reliefs for a long time. With the likes of Google and Facebook not officially registered as being based in the UK, is it time for a turnover-based tax on technology companies’ profit within the UK? The EU itself proposed, in March, a 3% levy on business-to-business revenues of Google, Facebook alongside Apple, Airbnb, Amazon and Uber. Independent of the EU, however, this seems rather an unlikely move by the UK government.
Will Brexit affect VAT and the Customs Union?
VAT and Customs Duty are the most likely to be impacted by Brexit. Customs duty will highly depend on whether the UK stays within the EU’s customs union. Doing so does not keep things as they are, as post-Brexit “frictionless trade” is not possible due to the separation from the single market. This makes the tax on customs the most difficult to predict at this stage.
The clearest and most obvious change will be on VAT of items coming into the UK. Every item that is imported into the country will charge import VAT which will have to be paid alongside the price of buying the items in the first place. Alongside the extra duty taxes and VAT costs, the movement of goods, practically, is going to cause possible delays at customs. With cash flow and practical issues waiting to happen, it will be interesting to see how the government reacts to these logistical nightmares.
Are there potential tax opportunities in Brexit Britain?
Despite the possible and expected administrative issues that will burden British businesses after Brexit, there is a feeling that opportunities will open up as well. Without the EU administrative needs, EC sales lists and intrastat declarations, there will be less paperwork that needs to be filled.
The change would also allow the UK, as a country, to decide how its tax system should be. For years, it has had to fit rules around the ones created in Brussels. The tax system, as it is, could be better and this new redesign could see it become better for everybody. However, such a thing would take time and, for the moment, parliament is having to consider and debate more pressing issues in time for the exit from the EU.
Which tax model could the UK adopt after Brexit?
The opportunity to create an ergonomic tax system, for the UK, is unlikely to be available for some time. However, there are models that the UK could adopt if it so chooses. The adoption of an existing model is something that is favoured by the Prime Minister. The three models that could be considered are:
- The Norwegian model – Norway is a member of the European Free Trade Association (EFTA) and has access to the global network of free trade arrangements. Because of this, Norway is eligible for the European Economic Area (EEA) Agreement which would put Norway within the single market. If they did so, the country would have to adhere to the free movement of goods, workers, capital, and services – which the UK currently does.
- The Swiss model – Switzerland is also part of the EFTA agreement. However, unlike Norway, they are not part of the EEA agreement. Instead of this, they have a regularly updated bilateral agreement which it uses to access the single market but, only partially.
- The WTO model – The World Trade Organisation is the outcome that will be in place, by default, if no agreement is reached between the UK and the EU. This model would see the UK apply WTO tariffs on imports and exports to and from the EU. EU members would then apply the same charges on UK goods. This does not provide access to the single market or any agreements the EU has with other non-EU countries.
Whichever model is ultimately chosen, businesses face an uncertain future until that decision is made. The debate will continue amongst corporations, the general public and government right up until a deal has been reached. All that is certain is that the UK is leaving the European Union and the tax changes will affect country as a whole for a long time to come.
Whatever truly happens after the UK has left the EU, 3 Wise Bears are ready to help with your financial needs. As expert tax accountants in London, we can help you prepare for Brexit. Get in touch with 3 Wise Bears today to see how your business can be ready for the unpredictable nature of the market.