As the Prime Minister has triggered Article 50 this week to formally start the Brexit process, we have been looking into the effect that this may have on the UK Tax System for businesses.
In reality, nobody is entirely sure about how Brexit will affect the UKs economy and growth, although the OBR has suggested that economic growth will slow. Prime Minister Theresa May has warned that there will be ‘bumps in the road’ but the Government is remaining positive about our future outside the European Union.
Businesses have called for as much certainty as possible, as a survey conducted by The Financial Director has concluded that more than one third of companies still have not begun etching plans for Brexit while 77% of UK businesses are concerned about the impact that it will have.
The most visible change for businesses is likely to be customs duty. For many years, most small and medium sized businesses have been used to moving goods around without incurring a duty or tariff liability. This is set to change as businesses begin to consider how they would cope with additional administration burdens created by import duty. For some businesses, holding stock in the EU rather than the UK for dispatch to the EU looks like a sensible option.
It is also likely that there will be a loss of the distance selling thresholds for VAT purposes. At present, UK businesses that breach their local sales threshold, must register for VAT in the EU country where their customers are. Once the UK leaves the EU, those thresholds will cease to be available and UK companies will fall immediately into local EU VAT rules, meaning online retailers are likely to have to register for VAT in many EU countries where they do not currently have to.
Some charities hope that Brexit will allow for a reduction in the rate of VAT they pay however there are warnings that any reforms introduced by the UK government could weaken charities’ VAT position.
Since we voted for Brexit, there has been a slowdown in business investment, which fell by 1% compared with the three months to the end of September, which is thought to be due to Brexit uncertainty hitting business confidence.
As announced in the 2016 March Budget by George Osborne, the new Government Lifetime ISA will be available from 6thApril 2017.
The Lifetime ISA (commonly referred to as the Lisa), is a tax-free savings account targeted towards ‘the next generation’ which provides you with a 25% government bonus. It can hold cash, stocks and shares qualifying investments or a combination of both.
You can save up to £4,000 a year and continue to pay into it until you reach the age of 50 which could theoretically net a £32,000 bonus for an 18 year old paying the maximum amount every year up to the age of 50. Once you have reached age 50, the account can stay open but you cannot make any more payments into it.
These funds must be used to buy your first home (with a value up to £450,000) or kept until age 60.
To open a Lifetime ISA, you must meet the following requirements:
You must be aged 18 or over but under 40.
You must be a resident in the UK or be a Crown Servant or the spouse or civil partner of a Crown Servant.
If you withdraw the funds before the age of 60, you will have to pay a withdrawal charge of 25% of the amount you withdraw, with the exceptions being terminal illness with less than 12 months to live or transferring to another Lifetime ISA with a different provider. If you die, your Lifetime ISA will end on the date of your death and there won’t be a withdrawal charge.
Your Lifetime ISA savings and bonus can be used towards buying your first home without incurring the withdrawal charge, however your account must be open for at least 12 months before you can withdraw funds from it to buy this home.
If you already have a Help to Buy ISA, you can transfer those savings into your Lifetime ISA or you can continue to save into both, but you can only use the bonus from one to buy your first home. Some may wish to transfer the balance of your Help to Buy ISA if the amount isn’t more than the £4,000 limit. While it is possible to invest into both your Lifetime ISA and Help to Buy ISA, the government have stated savers cannot use the bonus from both towards their first home, however it is possible to ‘roll’ the savings from the Help to Buy including the government bonus into your Lisa, which can then be used for the deposit on a home.
‘Money Marketing’ conducted a survey in which 4,157 adults were questioned. The results showed that 14% knew about the ISA but did not plan to use it and 66% had not heard about the initiative.