On Friday 24 June, the result showed that the nation had decided to leave the European Union and the politicians were left to face the music. There was no plan B, and it appears that little in the way of contingency planning had been made for this eventuality.
What could the tax implications be for us in the United Kingdom?
Mr Osborne, after the vote, hinted that the rate of Corporation Tax may fall to 15%. We will not know the impact for at least a month or more when the dust has settled on the Brexit vote. Any emergency tax measures take time to feed through the economy.
Our tax system has been influenced by the EU in various ways.
VAT is an EU tax and the UK interpretation has been affected by EU interpretations and cases
against the UK have been decided by the European courts. Likewise there is a common customs code in the EU. The UK may want to stay a member of the EU VAT Territory and Customs Union as part of any trade agreement but only time will tell if the EU will permit this.
As VAT affects almost all UK businesses and we all pay VAT as part of our daily life, any changes will affect us all.
Businesses which supply services on-line to individuals within the EU must charge VAT at the rate levied in the country of residence of the individual. This can be done today through a single VAT registration in the UK and the tax is accounted for by the UK tax authorities to all of the other member states. Will that continue after we have left the EU?
Currently there is minimal documentation required for sales and purchases of goods and services within the EU. Will this continue or will we be met by a new paperwork mountain? Will the fact that we have left the EU reduce the administration and bureaucracy or will we have to deal with more? These are the sort of barriers to trade which we hope will not arise but again only time will tell.
If the UK leaves the existing Customs Union, there will be an intensification of customs procedures for sales between European countries and possible increases in Customs Duties. It is in everyone’s interest to minimise red tape.
Will other Taxes be affected?
There are restrictions on what incentives can be given to UK companies. This prevents our existing tax laws providing certain incentives which would be looked upon as state aid in so far as they would give UK companies an unfair advantage over companies in other EU states. The UK may now be able to provide such incentives without such restrictions although the trend has been for the reduction of such incentives as these tend to distort the UK tax system.
Most of the UK’s double tax treaties contain provisions prohibiting tax measures which would discriminate against companies or individuals resident in the treaty country.
Individuals and freedom of movement
EU nationals have been allowed to move within Europe for work or leisure with little or no restrictions. Such freedoms will now be restricted and it is unclear how this will affect EU Nationals from other member states who have moved to the UK or indeed the many UK Nationals working or living in other member states including the many retired UK Nationals living in Southern Europe.
These individuals are able to benefit from reciprocal health care arrangements under EU law but how will this change?
There are also existing provisions for those who have worked in other member states to gain entitlement to pensions from other EU states. Any changes to these arrangements will affect those who have worked in other EU countries and vice versa. The country to which one contributes for the purposes of Social Security and National Insurance is also governed by EU rules. All of these many arrangements will need to be considered as part of the exit arrangements.
It is unlikely that there will be any dramatic tax changes in the short term but in the longer term, the UK will have to decide if it wishes to remove the large number of references to EU law which have become enshrined in our tax legislation over the last forty three years.
Before any of this can happen, we need to have a government which is prepared to negotiate and take the necessary steps to extricate the UK from the EU. These developments may take far longer than the two years set out in the Article 50 provisions for a state leaving the European Union.