As the political debate ensues in the wake of the UK’s Brexit referendum, many are left asking what the tax and fiscal implications will be if the UK leaves the European Union.
The precise impact is not possible to determine without knowing the exact terms of the exit negotiated by the UK and EU (which could be take a long as two years to establish). However, it is expected that the UK will have a significant job in reviewing its tax system and establishing new trade agreements with both EU and Non-EU members.
With substantial changes in the pipeline, we can expect a period of uncertainty for businesses globally. While the changes to the UK’s tax system will take some time, businesses around the world with interests in the UK will be need to reassess their arrangements.
Selling goods into the UK, supplying services to UK residents, operating a subsidiary in the UK or using the UK as an entry point for dealings with the EU, are all examples of business transactions that will be effected by the Brexit decision.
Exiting the EU, which is not only a single market but also a customs union, will require the UK to negotiate new trade agreements with the EU or risk attracting custom duties on the supply of goods and services in the region.
The UK will also have to negotiate new trade agreements with countries outside the EU where current agreements are held as part of the UK’s member status in the EU. This is likely to include a new Free Trade Agreement with Australia and New Zealand which may be in our best interests in negotiate quickly The UK is Australia’s 8th largest trading partner and accounts for 25% of our total trade with the EU (of which there are currently 28 members).
Exiting the EU will also have a significant impact on international businesses operating across Europe. A range of EU Directives are in place to minimise the tax burden on cross-border organisations. These directives will no longer be applicable in the UK post-exit. While the UK has a number of double tax treaties in place, it is likely that UK corporates and multinationals operating in the UK will see some cost.
The next two years will see the review of EU imposed taxes in the UK; the most notable of which is VAT. The UK will, for the first time, have the ability to decide which goods and services attract VAT and at what rate. At a time when Australia is debating the future shape of our GST system, observers will be keenly interested in movements in the UK.
Income tax, corporate tax and capital gains tax are also likely to come under review. While these are not EU taxes, the EU has historically had considerable influence over how they have developed due to successful appeals by corporates to the Court of Justice of the EU.
And it comes as no surprise that following a campaign based on immigration, employment is expected to be a key issue for both UK employers of EU workers, and UK born workers residing in the EU. New healthcare and social security agreements between countries will need to be negotiated and visa requirements and processes developed.
The issues outlined above are just some of the challenges expected to be faced by the UK’s new Prime Minister and his or her Government. And while they have a substantial task ahead of them, the implications are not confined to the UK, but will have an impact on businesses around the world.
For a more comprehensive analysis of the situation see Brexit – The tax implications, written by Mazars, one of William Buck’s partner firms in the UK. Both William Buck and Mazars are members of Praxity, the world’s largest alliance of independent accounting firms.