My last published commentary before the 23rd of June ended:
“If we vote ‘leave’ then it is highly likely that we would face a period of market turmoil …tax laws would remain in place until such time as the Government can plan for change. I am confident that the world will not stop spinning on its axis. We would just enter a new phase.”
And a new phase is certainly what we have…. post referendum we have a new Prime Minister, Chancellor and a wholesale change of Ministers. The new Government is creating time to plan for an orderly change as we move gently away from the language of austerity.
The following overview takes a look at what that change might bring:
While spectacularly over confident in my earlier accountingweb prediction that an emergency budget was sure to follow a leave vote, I am absolutely convinced that this year’s Autumn Statement will be a budget by any other name.
For the time being Britain remains a full member of the EU and it is without doubt to our benefit that the UK remains in charge of the timing of our exit. The impact of which is that we have least a two-year window to negotiate the terms of our exit from the time that Article 50 is invoked.
If the UK does not join either the European Economic Area or the European Free Trade Association it will have complete control over the setting of taxes within the framework of existing double tax treaties.
This would mean that government would no longer be required to seek European approval in respect of state aid or tax incentives, such as enhanced capital allowances or follow EU directives.
I am currently getting a mixed message from Multinationals. Non-EU companies who have previously seen the UK a staging post, from which, to trade with the EU are threatening to relocate to mainland Europe (for example in financial services). While others, including GSK, have announced inward investment in recent works.
It is too early to be sure over the government’s position regarding Base Erosion Profit Shifting, up until now it has been an early-adopter. Nevertheless, there has is speculation that post Brexit this might no longer be the case.
Income tax, Capital Gains Tax, SDLT and Inheritance Tax
The impact of Brexit on direct taxes is unlikely to be significant. Unless existing legislation has been adapted to avoid discriminating against EU nationals, falling foul of EU competition law and complying with the fundamental freedoms enshrined in EU law each is head-of-duty based on domestic legislation.
As with the above direct taxes, Corporation tax (CT) is underpinned by domestic legislation, as a result there is not likely to be fundamental change.
If George Osborne had remained Chancellor the headline rate of CT was set to drop as low as 15%. However, with the appointment of a new Chancellor and the mooted move away from austerity it is too early to predict if the Phillip Hammond will make good his predecessor’s commitment.
VAT might be based on European law, however, given that the UK collects in excess of 115bn relatively easily, it is unlikely that our government will sweep it away or implement radical changes to existing VAT legislation.
The UK would, however, be free to extend the scope of zero rating and exemption without the fear of a referral to Court of Justice of the European Union (CJEU). In addition, there would be an end to the requirement to levy VAT at a minimum of 15%.
The UK would be free to impose different rates of VAT on different types of goods and services and to widen the categories of goods and services benefiting from zero rating and exemption. At this stage it is unclear what would happen to any CJEU referrals that might be in the pipeline once UK leaves the EU.
From the date of “exit the recently introduced Mini-one-stop-shop (MOSS) will cease to apply. Non-EU businesses currently registered in the UK for Moss-covered supplies made across the EU will need to register anew in another EU country, as will similar UK businesses. Unless, they wish to register for VAT in every EU country to which they sell.
The UK will be free to introduce a new registration regime for Moss-covered services supplied to UK consumers from outside.
The reports of my death…
While undoubtedly there will be many changes to UK tax legislation in the wake of the outcome of the 23rd of June referendum vote. Ultimately in the tax context and particularly with VAT in mind I am left thinking of the Mark Twain quote “The reports of my death were greatly exaggerated.”
After all, as Benjamin Franklin once wrote:
“In this world nothing can be said to be certain, except death and taxes.”
Brian Palmer is the tax policy adviser for AAT.