The EU referendum result will, of course, have significant long term economic consequences for the UK and many areas of law will need to be adapted to the new era. What are the possible tax consequences of the UK ceasing to be a member of the EU?
The main point to note is that many areas of taxation such as personal and corporate tax rates have been matters upon which the UK has been free to decide without reference to the EU. However, the prospect of exit from the EU may indirectly affect the rates set due to the perceived financial effects of Brexit by politicians. The likelihood is that such issues will be addressed in the Autumn Statement in November/December.
Business reliefs such as R&D tax credits for SMEs have constraints placed upon them due to EU State Aid rules and so, post Brexit, there will be freedom to amend these reliefs.
VAT may be the area of greatest change. It is a central principle of the EU that the harmonisation of VAT is essential to the achievement of a single market. In theory, the UK could decide to abolish VAT and replace it with a sales tax on goods and services. This is extremely unlikely. However, it is likely that UK VAT law will become independent of EU law. UK legislation currently enacts EU law - the Value Added Tax Act 1994 being the main source. This legislation could be amended post Brexit to apply different rates to goods and services without constraint from the EU.
A likely inevitable VAT consequence of Brexit will be changes to how businesses export and import goods to and from EU businesses. For example, when a UK business buys goods from EU businesses it makes an 'acquisition'. The transaction does not result in any VAT being payable unless the UK business makes exempt supplies. Post Brexit, the transaction is likely to be treated as an 'import'. Import VAT would be paid to HMRC at the time of importation. This would be reclaimed by the business on the next VAT return (unless the business makes exempt supplies), so the effect will be a cash flow issue compared to the current position.
How extensive the changes will be will depend on the negotiations to exit the EU and the system adopted for trade between the UK and the EU. We will continue to inform you of significant developments that may affect you and your business and help you manage the opportunities and threats that may arise in the next few years.