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.