Brexit means many things to many people and we all made our choices. 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. 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.
Brexit and Tax
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.
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.
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.
Brexit and Investment
For investors the next two or three years can only mean one thing and that is further volatility. With this comes opportunity, perhaps risk, perhaps both. Our advice regarding investments has always considered timing, time in the market and your longer term objectives. Interest rates and currency risks are always going to be factors. Panicking when markets fall or waiting until markets have peaked to add to your wealth are rarely good investment strategies. But, as we are no crystal ball gazers, getting the timing right is of course extremely difficult. Your age and when you need money out of your investments will determine very much how long you need to stay in the market for. Your taxation status and your level of income is also extremely important. This applies in spite of Brexit. Whether it is Trump or Clinton in the US or whether we leave the EU within the next two years will effect markets, but it is your personal circumstances that will determine how to react. If your time in the market is expected to be short, don’t do it.
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.