We have a little over a year until the final Brexit date, but UK accountants have plenty to figure out in regards to how the terms of the departure will affect their clients’ businesses. On the surface, not that much will change. Many UK accounting laws were based off of various EU directives, and it is probable that most of these laws will stay the same.
But when it comes to taxes, there has been plenty of debate. Will the UK become a tax haven, becoming to Europe what Hong Kong is to China? How much will it continue to cooperate with the EU? And how will HMRC adjust to these changes? While there is not a firm answer to all of these questions as Brexit terms continue to be hashed out, accountants should understand what is likely to happen as well as what they can do to help their clients in the post-Brexit tax regime.
No Tax Haven
The idea of the UK becoming a tax haven has been thrown around going back to the Brexit campaign itself. Conservative commentators have argued that it would attract investments and help Britain regain its competitiveness on the global stage. Those opposed to the idea like Nicholas Shaxson with The Guardian argue that it would harm British society and democratic norms by attracting dirty money and would invite retaliation by the EU.
Whether such a strategy is good or not may seem unimportant, because the May government has indicated that it will not take the tax haven strategy. Chancellor of the Exchequer Phillip Hammond said in July said that such a move is “neither our plan nor our vision for the future.” Then in December, he joined other European finance ministers to warn that U.S. President Trump’s plan to slash taxes could contravene WTO provisions and hurt international trade.
While plenty could change within the next 12 months, it seems unlikely that the UK government will consciously decide to slash taxes and become a tax haven. Just like many accounting regulations, taxes should not be expected to change dramatically after next March.
A Possible Divergence
But while accountants should not expect tax cuts soon, Brexit can affect the UK tax structure in other ways. One of the biggest current concerns is HMRC’s ability to both prepare UK for the Brexit while also handling daily tasks.
While the UK will be leaving the EU customs union, the government has stated that they aim to negotiate for a new customs arrangement which is as frictionless as possible. But regardless of what deal is put in place, HMRC has to hire new customs employees, draft new regulations, and do this all while no one knows exactly what Brexit will look like. Meanwhile, the Tory government is disinclined to give HMRC additional resources to handle these new burdens. This means that HMRC is more likely to make mistakes and other less scrupulous individuals will be more inclined to take advantage.
Furthermore, there is the very real possibility of a slow divergence between UK and EU tax policy. The UK has always played a liberalizing role within the EU, slowing down attempts by other nation states to impose business regulations in the name of equality. Without the UK, the EU may end up taking a different path of its own, resulting in a slow but large divergence between UK and EU tax policy.
We are already seeing a basic example of this as the EU discusses how to fill the funding gap created by Brexit. Reuters reports that some officials are calling for higher taxes on fossil fuels, while others propose new corporate taxes. Meanwhile, UK citizens have expressed extreme reluctance for new taxes to fund their existing social welfare programs.
The current government may not be interested in directly slashing taxes for businesses like www.checksnextday.com to become a tax haven. But UK citizens and EU citizens clearly share different attitudes towards taxes which could result in a divergence over the long term. And in the short term, accountants should worry about an overburdened HMRC which will mean an increased chance of mistakes as well as fraudsters looking to trick citizens by posing as them.
Vigilance and Caution
UK businesses will not need to make any changes for a year, and it is better for accountants to wait and see what the final Brexit terms are before telling clients what to do. Over the short term, the picture indicates that the UK will not be a tax haven after Brexit, and so clients should know not to be expecting any tax cuts or a significant divergence from EU policy soon. That may change in the future, but it is hard to tell for now.
While Brexit is undoubtedly a momentous event, we can overestimate how much it will effect clients’ day-to-day lives. Encourage caution in avoiding scammers and make sure clients get their financial books in order as things change. If this sounds like advice you would give normally, that is the point.
