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Brexit - what are the likely implications for business?
The new Secretary of State for Exiting the European Union, David Davis, has recently indicated that formal Brexit negotiations could begin by the start of 2017 - so what could this mean for UK businesses?
It is important to note that in the short to medium term (until 2018 at least), there will not be any changes to tax and employment laws as a result of the vote.
However, once Britain's withdrawal is complete, VAT (which is operated in line with EU law) could be subject to some significant reforms. In theory, the UK could even decide to replace VAT with a sales tax on goods and services, although many experts agree that this is highly unlikely.
The UK currently faces restrictions from the EU over its ability to reduce VAT rates on certain goods and services such as domestic fuel and power. If the UK is no longer obliged to comply with the EU VAT Directive, the UK Government could choose to amend the legislation to apply different rates to goods and services without constraint.
If VAT were to be applied to items that were previously exempt, or if there are changes to the rates of VAT, the financial implications for business could be sizeable. Some commentators have also argued that potential changes to VAT law could lead to more obligations and complexities, and business owners may need to invest time and money adapting their procedures and processes accordingly.
Importing and exporting
The potential restrictions on the free movement of goods between the UK and its EU neighbours could also trigger significant changes to how businesses import and export.
For example, currently when a UK firm buys goods from an EU business it makes an 'acquisition'. The transaction does not result in any VAT being payable - a book entry in a VAT return being the only consequence, unless the UK business makes exempt supplies. However, following Brexit, the transaction is likely to be treated as an 'import' and import VAT would be paid to HMRC at the time of importation. Although this would be reclaimed by the business on the next VAT return (unless the business makes exempt supplies), the changes could have implications for the firm's cash flow.
Once Britain leaves the EU, the UK Government could have greater control over business reliefs such as R&D tax credits for SMEs, which currently have constraints placed upon them due to EU State Aid rules. Britain may also gain more flexibility over the rules governing the Enterprise Investment Scheme and Venture Capital schemes.
With much employment legislation derived from Brussels, concerns have been raised over whether this is another area that could be open to reform. However, while the UK Government could choose to amend working rights, many experts have suggested that significant reforms are unlikely.
In a recent blog on the Conservative Home website, David Davis suggested that he will seek to cut red tape with the aim of making 'Britain a better place to do business'. He claimed the 'regulation already in place will stay for the moment,' but he added that the 'flood of unnecessary market and product regulation' will be halted. With fewer regulations to comply with, this could be good news for business owners.
A new Chancellor, a new economic policy
With a new Prime Minister and Chancellor at the helm, there could be significant changes to Britain's economic and fiscal policies in the months and years ahead.
The Government has already axed its plans to achieve a budget surplus by 2020, while the former Chancellor George Osborne suggested that corporation tax rates could be cut further to encourage investment. Of course, this may now change following the appointment of the new Chancellor, Philip Hammond, although we will have to wait until the Autumn Statement for further details on the Government's latest economic strategy.
The dust may be settling on the EU referendum result, but there is still much that remains unknown about the future of UK tax and employment law. What is clear, however, is that all eyes will be on the new Chancellor when he delivers his Autumn Statement later this year. Whatever happens, we will be happy to advise you on any issues that may arise.
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- May 2016: Register of 'persons with significant control': the new requirements for companies
- April 2016: Reviewing the new tax reporting rules for multinational companies
- March 2016: What's in store for the new tax year?
- February 2016: The Scottish rate of income tax: an overview
- January 2016: Key planning tips for the Year End
- December 2015: The new rules on dividends
- November 2015: A new limit for the Annual Investment Allowance
- October 2015: Tax and property - important changes ahead
- September 2015: The latest changes to employment law
- August 2015: Creating an employee expenses policy
- July 2015: Sun, sea, sand…and work
- June 2015: Pensions auto-enrolment: are you up-to-date?
- May 2015: Claiming tax relief on refurbishment
- April 2015: New tax year, new rules: changes to business and personal tax
- March 2015: The new Marriage Allowance
- February 2015: Saving tax before the 5 April year end
- January 2015: VAT for digital business
- December 2014: Stamp duty reforms and business rates feature in pre-Election Autumn Statement
- November 2014: Saving tax on seasonal gifts
- October 2014: Social investment tax relief - could you and your community benefit?
- September 2014: Flexible Working Rights
- August 2014: Tax breaks for charitable giving
- July 2014: The sun is shining: let your business grow
- June 2014: Claiming the new NICs Employment Allowance
- May 2014: Tax-efficient estate planning
- April 2014: The New ISA
- March 2014: 2014 Budget Round-up
- February 2014: Could you save tax ahead of the year end?
- January 2014: Contingency planning: is your business prepared?
- December 2013: Seasonal tax advice for your business
- November 2013: Expansion - is your business ready?
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- September 2013: Charities update: some recent changes
- August 2103: The new flat-rate state pension: winners and losers
- July 2013: An inspector calls… coping with an HMRC investigation
- June 2013: Raising finance for your business
- May 2013: Ten top tips for reducing your tax bill
- April 2013: The new pension auto-enrolment scheme
- April 2013: The new cash basis: 'simpler' income and expenses?
- January 2013: Saving tax ahead of the year end
- November 2012: Child's play? The new rules on child benefit
- October 2012: Real Time Information: are you ready?
- September 2012: Are you up-to-date on pension auto-enrolment?
- May 2012: After the Budget: planning strategies to implement now
- April 2012: Making your business an Olympic success
- January 2012: The 5 April Year End - plan to save tax now
- November 2011: Autumn Statement 2011
- November 2011: Furnished Holiday Lettings
- October 2011: The Agency Workers Directive
- September 2011: Capital Allowances Are Changing: Make Sure You're Prepared
- June 2011: The Bribery Act: What your business needs to know
- May 2011: Don't get caught out by the taxman!