Accountants with small business clients based wholly in the UK can expect the tax system to continue in much the same way in the months ahead, according to Andrew Scott of law firm Pinsent Masons.
Scott recently considered the top 20 tax questions on Brexit for the firm’s July tax update. AccountingWEB caught up with the tax director to find out about the burning tax issues for UK accountants in smaller firms.
“A lot of the commentary so far has been on the global multinationals. Leaving the EU is going to have the most obvious impact, from an operational point of view, on the people who have monetary flows across national borders,” Scott said.
He went on to explain that if you’re a wholly UK business, there will be two main areas of interest to consider in direct and indirect taxation.
The first is around direct tax, so corporation tax if incorporated or income tax on trading profit.
According to Scott for a normal SME it’s not obvious that Brexit in itself is going to have any particular impact:
“Most of the provisions that are part of the corporation tax code that have come from the EU are dealing with issues that aren’t going to affect an SME that’s solely within the UK. For instance, the CFC [controlled foreign corporation] rules the UK has don’t really have much to do with a regular SME conducting a wholly UK trade,” he said. “It will have no impact, so the basic nuts and bolts of the direct tax code will continue much as before.”
However, Scott did warn that the “great unknown” was if Brexit itself produces policy responses by government that will alter the tax code.
The former Chancellor George Osborne came out quickly and said he wanted to reduce the CT rate down in order to increase the attractiveness of the UK as a place to do business. If in a few years’ time the tax take has eroded because of economic recession, the government will have to think through its tax system again.
Scott said: “If it wants to keep up the receipts it will have to come up with different ways of getting those receipts, and that may well have an effect on how it structures its business tax rules. I can’t see Brexit having an immediate impact for a UK SME on direct tax, you’ve got to be doing stuff cross boarder basically.”
The second big potential issue as Scott sees it is around indirect tax, specifically VAT, and he admitted nobody really knows for sure what will happen.
Nevertheless, he did add: “What can be said with extreme certainty is that there will be something, whether it’s called VAT or not, which will in the beginning closely follow VAT code. I can’t think that there isn’t going to be something very close to VAT.”
Scott added that if you’ve got an EU-based litigation claim, you can still get those in the VAT world because the EU courts will opine on matters of what the VAT rules at the EU level mean and those rules are then implemented in the UK:
“There may well be SMEs who have got an interest in those and may want to, like anyone else, make sure that they get in before the shutters come down.”
Depending on when Brexit actually happens, Scott said it will be a while before anyone actually sees significant change going about their normal day-to-day business.
“That’s just what the government wants to do. It might want to fiddle around and make changes to exemptions and it might want to increase zero rates, neither of which are currently possible,” he said. “There’s far greater freedom for our government to favour a particular business or sector if it wishes to.”
Finally, Scott added that apart from the fact Brexit will have a massive impact on future government policy, and therefore in the future anything could happen to the nature of the UK tax code, in itself Brexit has little impact on the direct tax position. Indirect tax is significant, but Scott said he would anticipate that it will be a more gradual change over a number of years depending on what some of the traders are doing.
“If you’re doing something that is just a regular taxable business from a VAT perspective – you’re not in the world of exemptions, you’re nowhere near exemptions or zero rated – I’d anticipate the system being pretty much the same,” Scott said.
What impact do you think Brexit will have on your firm when it comes to tax?