So, what do we know about the tax implications of Theresa May’s, recently announced 12-point plan to prepare the
UK to leave the European Union? The Prime Minister has stated that the UK cannot stay in the single market and while it’s obvious that has tax implications no one knows exactly what that means yet.
Given the amount of EU driven tax legislation which currently impacts on businesses it’s going to be a complex conundrum to unwind. We haven’t got all the answers but are keeping a close eye on how things develop so we can help you stay on top of changes in tax law.
Theresa May has set out 12 objectives to ‘build a truly global Britain’, saying that the UK cannot remain within the European single market as staying in means we are ‘not leaving the EU at all’. Instead she wants to ensure a ‘big free trade deal’ with Europe, not that she, the government or indeed Whitehall officials know exactly what this will look like.
Here we look at those we think directly relate to business tax concerns
Legal stuff
Much has been made of the end to the jurisdiction of the European Court of Justice (ECJ) and UK laws will be made in Westminster, Edinburgh, Cardiff and Belfast. Laws will be interpreted in courts in the UK not in Luxembourg, which is the case now. This has major implications as withdrawal from the jurisdiction of the ECJ means it will no longer be the final arbiter on major tax cases which is often the case now.
Further comments were made after the speech by David Davis who noted wider implications for UK legislation, in the case of the directive governing auditors and listed companies (public interest entities) – the Audit Regulation & Directive (ARD) will be introduced in the UK in June 2017.
This is likely to be retained as the UK regulatory framework is already stronger than the minimum EU requirements as a result of the 2012 Competition & Markets Authority investigation into competition in the audit market and subsequent gold plating of the EU rules.
Theresa May is clearly keen to provide certainty for businesses however, there will still be a transitional phased implementation of Brexit. This should allow businesses time to plan and prepare. It’s likely the transitional period post 2019 which will see some EU law still effective in the UK.
A UK tax system
Post Brexit the government will have the freedom to set its own tax rates, for example, Britain could make sure it remained a good place for investment, ultimately benefiting business but potentially damaging HMRC income from tax.
On the one hand, leaving Europe provides the opportunity to abandon EU restrictions on the UK tax system, allowing it to evolve to meet the country’s own needs. On the other hand, with thousands of regulations to rewrite, complex negotiations to be undertaken and all of this in the context of global economic uncertainty where the UK wishes to continue to play a vital role, there is a serious risk that the opportunity to clean up the UK tax system will be missed because of lack of resources and too much busy-ness in other areas.
Tax simplification
Despite the work of the Office of Tax Simplification, parliament enacts hundreds of pages of new tax laws every year. If nothing else Brexit provides a catalyst for looking at what tax law is needed to encourage businesses to trade.
It could be an ideal opportunity to consider integrating income tax and National Insurance Contributions as well as considering how to tax things like self-employed income, employment income, pensions, property income, interest, dividends, short-term capital gains and long-term capital gains. Another area mooted for review is inheritance tax. One option being to abolish and replace it with a capital gains tax charge on the growth in asset values at the time of a person’s death.
Tax reliefs
Another area that will need to be considered carefully is what happens to the EU-driven tax rules which required EU-resident individuals and companies be treated in the same way that HMRC treats UK-resident individuals and companies. Particularly given the requirement to comply with State Aid rules which have reined in some UK tax laws intended to boost the UK economy which have had wide-ranging effects.
These include transfer-pricing, the enterprise investment scheme, venture capital trusts and “patent box”. Post Brexit the potential lifting of the State Aid and other restrictions provides an opportunity to restore these tax rules to the way the UK wanted them to be in the first place, and to develop more precisely focused regional tax policies within the UK.
VAT
Last but not least is VAT which is a European tax; however, it’s likely it will continue in a UK form after Brexit. There is an argument to reduce the VAT applied to goods in order to stimulate the economy whilst Brexit negotiations are underway. It could of course ultimately be restored to its present level.
Whilst changes to tax legislation do take while to go through parliamentary processes the Bedrock team will be keeping any eye on developments so that we can help advise on how best to prepare your business for the tax implications of those changes.
If you’re an accountant or business adviser with clients who trade abroad or are indeed a business owner who wants to make sure you’re correctly applying current tax arrangements get in touch today to talk to one of our tax experts.
