On 23 June 2016, Britain was on the receiving end of a political “Storm Surge”. Britain’s Sea of humanity, its people, surged in their millions voting to leave the EU permanently. For many the unthinkable has happened; a “Brexit”, causing immediate economic turmoil, the fall of the British Pound to a three decade low and the resignation of a Prime Minister who passionately backed the country to stay in the EU, while Brexit has also undermined the leadership of the opposition.
The political, financial and social landscape of the UK has dramatically changed and in doing so, the UK is experiencing an anxious period where very few can predict the long term, let alone the short term future of a post-EU Britain.
On Friday, one of the most common questions we were asked was: “What is going to change?” Our immediate answer was “probably a lot”, but the detail at this point is uncertain. The UK Government have stated that it will take at least 2 years to leave the EU, if not longer. When changes occur, adapting to them is key and that is exactly what business owners and taxpayers will need to do in the coming 24 months and certainly in the years to come.
First and foremost, we can be sure that Brexit will not destroy the UK economy!
While the short-term outlook for the UK economy has clearly weakened, the ultimate damage will be much smaller than many “knee-jerk” estimates suggest.
Sterling’s immediate decline will lift inflation, albeit from a very low level, but it will also help to protect the export sector. There are clear parallels with Sterling’s exit from the ERM in 1992.
Consumer sentiment is unlikely to plummet sharply, given that more than 50% of those who voted got the outcome they wanted.
The Bank of England Monetary Policy Committee will look closely at measures to be applied in a coordinated manner to respond to inflationary and other consequences.
But, what about you? What could change for you as a business owner? Below are some points here changes are “likely” to occur.
Brexit will certainly have an effect on the UK Corporate Tax System. Once the UK finally exits, EU directives and Case law will not be relevant to UK Corporation Tax. These changes could help reduce the amount of Legislation which may appear, on the surface, a positive move, but part of these changes could effect “relieving provisions”, which could in certain circumstances contribute to a higher Corporation Tax Liability.
Changes to the current UK VAT structure are inevitable. The main changes will eventually occur in the following three areas:
- Compliance:- Intrastat and EC Sales lists will no longer need to be completed, but business trade in goods may need additional import and export declarations. Businesses may also lose the access to the EU “One-Stop shop” which is designed to reduce or remove the burden for a business requiring VAT Registrations across various member states. This could have a significant effect on Small and Medium sized businesses in the B2C (Business to Consumer) arena.
- Systems: – IT systems in particular will need to be updated in line with the changes. Invoice templates, new VAT Registrations in member states (as stated above) will need to be administered. The Import and Export system CHIEF will need to be in place to deal with the increased number of transactions due to Brexit. Also the way in which a business reclaims VAT incurred in other EU member states under the Refund Directive will change. The UK will need to decide if they will continue to allow foreign businesses to reclaim UK VAT in this way, which could have a knock-on effect to a UK business or claiming from other member states.
- Bottom Line VAT costs: – For a start we could expect a change in VAT Rate, but this would probably not occur immediately. However, due to economic issues create by a “Brexit”; such changes are bound to be in the pipeline.
- Tour Operators Margin Scheme (“TOMS”): – Changes to TOMS (Tour Operators Margin Scheme) will likely happen. EU Travel taxed under TOMS is subject to VAT, while NON-EU travel is not. EU travel companies outside the UK will see their VAT costs reduce, making the UK market a more attractive business opportunity.
Chris Photi our Head of Indirect Taxes says:-
“EU Law on TOMS currently binds the UK. However the UK has its own domestic laws that implement EU rules. Nothing will change while the UK negotiates terms with the EU which will take a couple of years. UK TOMS legislation remains in force until repealed.”
Having spent much time and healthy debate over the new EU Package Travel Directive (“PTD”) it seems, we, the UK may be back to the drawing board. The major trade associations have issued very sketchy advice to members along the lines of “business is normal but watch this space” (However it is interesting that extremely detailed and immediate (and helpful) advice has been issued for consumers by these organisations!). There is little doubt that the proposed changes in the PTD, EU law to be implemented in the UK by new Package Travel and ATOL Regulations, would mean belatedly, after 24 years, a licensing regime in the UK that could be applied to all EU source consumer markets. Brexit will mean this will continue to be inverted and only applied to UK consumers. Our view is that this will mean even heavier UK compliance requirements set by the various organisations holding responsibility thereof.
We all have, quite rightly, concerns but it will only be through the passage of time that things will become clearer. Resilience appears to be the quality that we all need to display.