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Brexit: The Accounting and Tax Implications

31st Aug 2016
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The public's decision that the UK should no longer be part of the EU has thrown much of the UK's financial and legal landscape into uncertainty. This has left many businesses and individuals unsure of what the implications will be for matters of tax and accounting.

Part of this will depend on the country's post-Brexit deal with the EU. While many have expected – indeed, a lot of Leave campaigners have hoped – that the UK will remain part of the European Economic Area (EEA), this is by no means a certainty. The Prime Minister has acknowledged public dissatisfaction over EU immigration as a key driving force behind the Leave vote, and countries that have deals giving them access to the EEA also have to allow almost as much freedom of immigration as those who are members of the EU.

Depending on exactly what kind of trade deal the UK strikes, therefore, the implications for accounting and tax matters are rather uncertain. It could be, for example, that the UK becomes largely or entirely divorced from single market rules in these areas, remains bound by them, or finds itself somewhere in between.

Whatever the case, leaving the EU will certainly mean the UK is no longer bound by at least some of the EU laws that it is currently subject to. However, whether the government feels there is reason to change anything about accounting and tax matters right away just because it is no longer required to continue following EU rules is more debatable. In other words, there are multiple reasons for uncertainty about what exactly the implications will be.

Nonetheless, it is of course possible to identify key areas of accounting and tax law that will suddenly find themselves subject to potential change in a post-EU Britain. As far as accounting goes, there are quite a number of laws that originate from the EU and which the government may decide to review after Brexit. Among the specific areas of legislation which are believed to be open to possible revision are directives on the obligations of accountants on behalf of companies, disclosure of documents, public company mergers, company formation, and annual or consolidated financial statements.

Regarding tax, it is considered a virtual certainty that some kind of review will take place, though there is not nearly so much certainty as to what shape this review and any resultant changes might take. Even if the UK joins the EEA in such a way as to virtually preserve the benefits and obligations of membership in other areas, the EU's tax laws would essentially become optional for the UK. Indeed, some suspect that the government may seek to actively use tax law as a way of distinguishing the UK from the EU, and to make the country more competitive as a place to do business.

It is believed that there is a very real chance that VAT rates, and potentially the way this tax is administered, will come under review when EU requirements are no longer in force. Excise duty harmonisation is another key area that could face revision, and upcoming EU measures such as financial transaction taxes or base erosion and profit shifting proposals may never arrive on UK soil.

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