The tax implications of Brexit

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Robert Lovell
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There will likely be an emergency Budget after a vote to leave the EU in order for the government to provide clarity and a roadmap for the government’s priorities for changes to the tax regime.

However Jason Collins, who is head of tax at law firm Pinsent Masons, added that the UK tax system would not change overnight and existing UK laws would continue unless and until changed.

Examining the tax consequences of the UK voting to leave the EU on 23 June, Collins said: “The UK would still continue to be a formal member of the EU and would have up to two years to negotiate the legal framework for exit, with possibly even longer if all the member states agree.”

He added that the UK would retain any bilateral trade agreements to which the UK is a signatory but would eventually lose the benefit of the agreements for which the EU is the signatory.

The UK could also seek to join another association of countries to strengthen its bargaining position when it comes to negotiating terms country-by-country or bloc-by-bloc.

On corporate tax, Collins said the UK would be free to make sweeping changes to its corporate tax system, including offering additional incentives without having to seek EU state aid clearances.

Along with exempting transactions between UK companies from the scope of transfer pricing and similar rules, the Treasury could be tempted to introduce a law abolishing historic EU-law based tax refund claims, Collins said.

He also said leaving the EU was unlikely to soften the government’s approach to clamping down on tax avoidance by multinationals.

George Bull of RSM also recently addressed the issue of what would happen to the UK tax system if the UK voted to leave the EU.

On transfer pricing Bull said it could abolish these rules. EU state aid rules would also no longer prevent the UK government from giving selective advantage to companies via advance tax rulings; and future incompatibilities between UK tax law and EU would cease to be a problem.

On indirect tax, Collins said the UK would be likely to keep the VAT system given the large contribution it makes to the Treasury.

“Whilst the tax would be exclusively governed just by UK law, the UK is unlikely to want to depart heavily from the EU rules and jurisprudence since businesses would suffer the additional compliance burden of maintaining a different system from that used by our main trading partners,” Collins said.

He added that leaving the EU would enable the UK to extend the scope of zero rating and exemptions.

For those challenging the UK’s VAT laws in the European Court of Justice, he said the position was not clear.

“The CJEU should continue to have jurisdiction whilst the UK negotiates its withdrawal but will that be the case after an exit, in relation to periods whilst the UK was within the EU?” he said.

On VAT George Bull said the interpretation of VAT law would not be bound by the CJEU.

“The taxation of cross-border transactions may change. Although the EU is developing plans to extend the One Stop Shop mechanism to non-EU suppliers of online sales of goods, it is likely that many UK traders will, nevertheless, have to register for VAT in each EU country in which they trade,” he said.

He added that businesses should look at their contracts with EU suppliers now, and that if VAT in a contract is defined solely by reference to EU law, it might be worth changing the definition so that it will continue to work as intended following a Brexit.

AccountingWEB tax editor Rebecca Cave has also warned that any political change creates more tax upheaval. 

“There are thousands of statutory instruments that take account of EU law which would have to be reviewed, and someone (a civil servant, a minister?) will need to decide which of those regulations are to stay and which will be repealed. This alone creates huge uncertainty for businesses as they won’t know which regulations will continue to apply and for what period,” Cave said.

 

Registering to vote for the EU referendum has now been extended to midnight on 9 June. What’s your take on the big tax and business issues in the event of Brexit?

Replies

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By deg2yq
10th Jun 2016 11:16

I am willing to take the chance on Brexit. I am a hardcore tory voter . In fact I donoted thousands to their campaign and actively campaigned door to door for many of the London and home county MPs this last election .

I signed that now infamous 5000 small business document against against ed milliband and spoke on radio about it .

Then Cameron turns around and stabs small business in the back .

No one can truly believe a word he says about anything at all.

This will be a vote against Cameron as much as for Brexit.

I just want to see the back of him and a new conservative leader , who really is a conservative and genuinely someone who supports small business not just in word but indeed

I am voting Brexit

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By AWebbie
to deg2yq
10th Jun 2016 11:58

With no disrespect to hardcore Tories, a decision to leave the EU should not be based on political gamesmanship. Economics and practicality show beyond reasonable doubt that a divorce after 40 years will be as financially damaging in this case as it would in a marriage breakdown. It is our children and our grandchildren whose wellbeing will suffer. We owe it to them not to sacrifice their future for short-sighted political considerations.

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to AWebbie
10th Jun 2016 12:09

@Awebbie
The EU is defunct and past it's sell by date. It only has a political agenda. The immigration and Greece crisis shows what they are not capable of.
Have some faith in our own ability to prosper. I dispute your reasoning that economically we would be worse off. Once the shackles are thrown off just watch the enthusiasm of our youth take on the world.

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johnjenkins wrote:

@Awebbie
The EU is defunct and past it's sell by date. It only has a political agenda. The immigration and Greece crisis shows what they are not capable of.
Have some faith in our own ability to prosper. I dispute your reasoning that economically we would be worse off. Once the shackles are thrown off just watch the enthusiasm of our youth take on the world.

Aren't our youth already taking on the world from within the EU. Digital really knows no borders and that is where most of our youth are playing. Unfortunately for me Brexit campaigners can't provide any certainty.

The choices in this referendum are dire, vote remain and you're voting for something that is broken and you are hoping it can be fixed, vote leave and you are basically betting on red, when black or green are more likely to come up and not voting is just sticking your head in the sand.

So far Brexit have spent all of the money we won't send to the EU on the NHS, what about Research and Development which is hugely funded by the money coming back from the EU, what about Regional Development that is heavily funded by EU Money. Yes it's a lot of money that we pay to them and we don't see it all come back, but that is more than made up for in trade.

If you think that we can subsidise our Steel or other selected industries more by being outside of the EU, don't be surprised if they slap huge tariffs on the outputs from those industries when supported companies try and trade with the EU, because we would have made them more competitive and the EU would level the playing field.

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to [email protected]
10th Jun 2016 14:36

I don't agree with state subsidies, the more I read the more I feel why shackle engineering industries with over-priced raw materials, let them buy at true market price and thus create more jobs, profit and ultimately tax.
The effect of propping up unsustainable business is inversely exponential, by propping up British Steel by tariffs you risk dragging down thousands of engineering businesses.

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By qhas
to [email protected]
11th Jun 2016 20:14

Simon-AT-CoodenConsulting wrote:

johnjenkins wrote:

@Awebbie
The EU is defunct and past it's sell by date. It only has a political agenda. The immigration and Greece crisis shows what they are not capable of.
Have some faith in our own ability to prosper. I dispute your reasoning that economically we would be worse off. Once the shackles are thrown off just watch the enthusiasm of our youth take on the world.

Aren't our youth already taking on the world from within the EU. Digital really knows no borders and that is where most of our youth are playing. Unfortunately for me Brexit campaigners can't provide any certainty.

The choices in this referendum are dire, vote remain and you're voting for something that is broken and you are hoping it can be fixed, vote leave and you are basically betting on red, when black or green are more likely to come up and not voting is just sticking your head in the sand.

So far Brexit have spent all of the money we won't send to the EU on the NHS, what about Research and Development which is hugely funded by the money coming back from the EU, what about Regional Development that is heavily funded by EU Money. Yes it's a lot of money that we pay to them and we don't see it all come back, but that is more than made up for in trade.

If you think that we can subsidise our Steel or other selected industries more by being outside of the EU, don't be surprised if they slap huge tariffs on the outputs from those industries when supported companies try and trade with the EU, because we would have made them more competitive and the EU would level the playing field.


I would rather be broke and alive than be 'rich'and dead when all the Muslim terrorists stream in from the other EU nations and we all live under Sharia Law or be killed
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By bseddon
to AWebbie
10th Jun 2016 13:00

I'm voting to remain. But I detest psuedo-arguments like the one you advance 'think of the children'. It's not justified.

Your argument is that because our parents made a decision 4 decades ago we should put up with its consequences for ever more at any cost.

Those considering Brexit are understandably concerned about sovereignty - a truly immense issue not the trivial "short-sighted political consideration" you claim. Their consideration deserve respect.

Stop impuning the intentions of the others and instead make the positive case for staying in the EU.

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By Mike18
to bseddon
11th Jun 2016 15:39

I agree that the case in or out should be a positive one, but the out campaign has been devoid of any economic argument that stands up to fact checking. As for Sovereignty, which Brexit campaigner mentions the veto, or that the UK's elected government led by Margaret Thatcher was especially important and involved in creating the single market.

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By deg2yq
to Mike18
11th Jun 2016 22:01

bullocks

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By Mike18
to deg2yq
17th Jun 2016 14:13

A typically ignorant reply.

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By deg2yq
to AWebbie
10th Jun 2016 13:36

it seems rather than spending money in more doctors Cameron's cronies are spending money trolling forums and telling us , like 'Silas Marner' that the world out there is too frightening and that we should opt for the security of a world where global corporations and academic elitists not to mention political hacks and wannabes rule our life's for ever more while our middle class and their children's aspirations are crushed .

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to AWebbie
10th Jun 2016 14:24

Thing is it was an arranged marriage based on lies and deception, the promised dowry never arrived!

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to Smokoe Joe
10th Jun 2016 14:28

Also, never stay in a marriage for the sake of the kids, it does them more damage than a clean break if the relationship has broken down.
UK is Helen Archer to the coercive control of EC's Rob Titchener, time do do a Helen and reach for the carving knife!

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to deg2yq
10th Jun 2016 12:04

Yep me tooooo. Cameron's crap has really shown him up for what he is since the coalition bailed him out. Never mind Boris looking to number 10. DC is looking for a cushy number in the EU.
The tax situation in this country will not change until we get a PM that realises it's the small business that is the backbone of this country.

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10th Jun 2016 12:16

Hmmm...I thought us accountants could see past the political positioning of the "players", and look for facts and rationally make a decision based on empirical evidence.

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By Mike18
10th Jun 2016 12:29

In 2012, the EU received the Nobel Peace Prize for having "contributed to the advancement of peace and reconciliation, democracy, and human rights in Europe."

Seems so much of the referendum debate is about petty short term issues or personality politics. I am voting to remain, because international cooperation is much more important than tax changes. Brexit means turning back the clock on all sorts of levels.

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to Mike18
10th Jun 2016 13:22

OK, we have a few misconceptions that need addressing.
the leavers haven't said they will spend the extra money on the NHS. What they and Boris confirmed last night that the money would be prioritised. there is no economic case for staying or leaving. Although just look at the state of the EU. Peace has been kept not through the EU but the UN and other peacekeeping organisations. A big contribution was the breakup of the USSR. Now I wonder what happened there?
As for our youth. How many can't get a job, how many still live with parents, how many have debts of £50k when they leave Uni. etc. etc.

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to johnjenkins
10th Jun 2016 14:43

Agreed, I'm out, I vote for self-determination, if the economy takes a short term dip so what, it might anyway, if anyone knew we would never have boom and bust.

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By Ammie
10th Jun 2016 15:16

Its all guess work, scaremongering and uncertainty. It was originally when we joined the previous format and it is still today. Nobody really knows, 90% of the debating is just "flannel" and playground victimising.
Even Mr "WMD" himself, Blair expects all to heel after the drivel he dished up and then handed over to scapegoat Brown.
The EU is riddled with sleeze and snouts in troughs. It is only a real benefit to the likes of Greece.
The EU needs us more than we need them, and yes, I expect turmoil soon after if Brexit succeeds and much financial and business punishment from EU states that disapprove but, so what, it will blow over. It has not been a cushy prosperous time for all anyway. Our leaders need to take a much closer look at real society not just their "top table."
The real fear from Brussels is that if the UK leave others will follow.
Just wait until Turkey joins, Merkhel and co will be whining even more.
We coped before the EEC was born and we will after.
I forsee a slim remain victory, and all this will be such a close call for Cameron he will be the most relieved person on earth, particularly after promising the vote he now almost certainly regrets. But the worse bit will be that Cameron and co will dine out on the success for ever!!

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to Ammie
13th Jun 2016 09:40

I wonder how many of you remainers now have dual nationality???????????

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By deg2yq
13th Jun 2016 09:51

I am partly of French heritage ( my dad) , my ex wife is full blown French partly of Jewish heritage , my daughter though born in uk only holds a French passport .

And I am still voting LEAVE

What meekly did was unforgivable

The deception of Cameron is shocking

Let's defeat project fear

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to deg2yq
16th Jun 2016 11:50

Getting back to the tax aspect.
An emergency budget???????? What's that all about?
Osborne and Darling, what a win double that pair.
I shudder to think what we gonna get from the remainers in the run up to 23rd.

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By Ammie
to johnjenkins
16th Jun 2016 13:16

I believe Osborne will "weigh in" and punish UK citizens on the back of his negative claims of Brexit, and as a knock on effect of some EU members imposing financial punishment on us.
Hitting us is his way of demonstrating that Brexit is wrong. A "told you so" moment.
That should pay an end to his political career, Camerons is wavering anyway.
Buckle down, it will be a rollercoater ride if Brexit win. There will be issues, even if remain win, purely because it will be very close and uncomfortable for Westminster.
Just my opinion!

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17th Nov 2016 14:37

added that the UK tax system would not change overnight.

To right it takes tax legalisation around 3 readings in the commons and 3 in the house of lords, nothing is going to change significantly for at least 6 years.

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to AndrewV12
17th Nov 2016 14:58

Andrew you avin anuver day orf?

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