The Referendum and Related
With the Referendum this week, everyone is talking about the potential advantages and disadvantages of Remain and Leave so we are taking a look at the potential tax effects of each option.
There is clearly a lot of uncertainty and the issues noted are only possibilities. We are not making predictions and there is the chance that little will change at all.
The UK is part of a customs union, as a member of the EU, so that goods can travel to other member states without duties, import VAT or other compliance obligations. Under Brexit, the UK would be outside this customs union and may lose access to any favourable terms of export between the EU and third parties.
A similar arrangement may be put in place as part of Brexit, with new agreements with more third party countries.
VAT is an EU tax with vast complexity and compliance, for example a large amount of tax tribunal cases concern VAT issues. However, VAT is unlikely to be abolished after a vote for Leave as it also raises over £100bn annually for the Treasury.
If this is the case, in the long term VAT may diverge from the current system as it evolves into a UK only system. Compliance costs may increase, if businesses export to Europe, as access to ‘one stop shop’ VAT arrangements might end and revert back to VAT registration being required in a number of EU countries.
Direct Taxes (corporation tax, income tax, capital gains tax etc)
These taxes are not directly related to the EU, but their rules have to comply with treaty freedoms and other EU laws. For example, the UK’s rules on furnished holiday lets and corporation tax group rules have been found to be non-compliant in Europe and have had to be changed accordingly.
Post Brexit, the UK may wish to reverse previous changes. It is also possible that a future agreement with the EU, allowing access to the single market, will require the current arrangements to continue.
Currently there are no withholding taxes on payments of dividends, interest or royalties between the UK and EU. The automatic rules governing this will cease to apply after Brexit. The UK however also has a wide network of double tax treaties, including ones with every other EU member, so the situation should broadly continue in a similar manner but there may be extra administration costs in certain situations.
Timing of changes
There will be no overnight changes under a vote for Leave, the terms of exit would be negotiated over a period of about two years or more. After this period, there is no way to predict if or when changes might take place and new international agreements will be required which will take time to be negotiated.
Tax Effects of Remaining in the EU
The EU is seeking to revive proposals for a common consolidated corporate tax base, potentially leading to changes in the UK to corporation tax. There has also been attempts recently to introduce a Financial Transactions Tax (FTT). A vote for Remain could be the first step towards these and other measures.
This is a brief overview of potential tax matters to consider in the Referendum which we hope you have found interesting and informative.
To see our other news items please visit our Muras Baker Jones – Blog.