The result of the recent referendum, in which the UK voted to leave the EU, has left the UK and other parts of the world in an uncertain position.
We have not been here before so there is now confusion as to what this means for business. The first thing to say is that nothing has changed since the result of the vote was announced. We now at least have a new Prime Minister who has made a clear statement that there is no going back. Whilst the uncertainty will continue, Mrs May’s quick appointment will provide much needed stability. The UK now needs to serve notice on the EU that it wishes to leave and there is then likely to be a two year period during which various changes will be agreed and announced. Whilst there will no doubt be a number of political and social implications, this article considers some of the likely implications for international businesses.
There are arrangements within the EU for the free movement of goods which means there is no customs duty nor VAT on goods moving within the EU. Unless the UK can negotiate a trade agreement with the EU which allows for the continued free movement of goods, customs duty and VAT will become chargeable. This would mean that when goods arrive at the UK border they would need to be declared, and VAT and duty paid on them. This is no different from what happens now for goods coming in from outside the EU. The reality is likely to be that a suitable trade deal will be agreed. The UK is a big market for EU producers, as the EU is for the UK. It is in everyone’s interest to continue to allow for the free movement of goods.
On the upside, some of the reporting requirements under the existing EU rules will disappear. Also, the UK will now not be constrained by EU Directives on the rate of VAT to be charged on various goods and services, and will be free to decide on what the rates work best for our economy.
Unlike VAT, corporate, income and capital gains tax are UK taxes and are not influenced by the EU. That is not to say that the implications of Brexit will not have an impact on these taxes. The possible negative is that the economy has a downturn and the government needs to generate increased revenues. This may happen.
The government has however already outlined its desire to reduce the rate of tax on corporate profits to 15%. It is currently 20%, going down to 19% next 1st April and then 17% from 1 April 2020. The lower rate of 15% may be introduced sooner than anticipated.
This is the area of greatest concern. The current freedom of movement for people within the EU means businesses have a large talent pool to choose from. A points based immigration system may change this. Whilst a concern, this is no different from how many other countries operate very successfully. For people with the right and needed skill sets, whilst there will be an administrative delay, it should not stop them from being able to come to work in the UK.
In conclusion let us try and answer some recurring questions from our US clients since the result of the referendum was known:
Q: Is it going to become more difficult to do business in the UK?
A: Highly unlikely. The set up process is not governed by EU legislation. It is more likely that the UK will be striving hard to make it as easy as possible to do business here to keep its competitive edge in the global market
Q: Will our profits be taxed differently?
A: Highly unlikely and there may even a possible reduction in tax rates.
Q: Will it be more difficult for US nationals to come and work in the UK?
A: Highly unlikely. US citizens are already subject to our immigration and visa regulations so they are unlikely to be affected further by any tightening of our immigration policy.
Q: Will it be more difficult to do business with otherEuropean countries?
A: This is possible as it will depend on what trade deals the UK is able to negotiate. If we bear in mind though that the EU countries will be as keen to continue to sell their goods and products to the UK as the UK is to them, we do not anticipate any significant barriers. There may be some greater administration on goods moving across borders but there are unlikely to be additional duties and VAT. Furthermore, because VAT is a greater issue for goods than it is for services, the large number of technology companies doing business here are unlikely to be affected.
Q: Will it become more difficult to do business in other EU countries?
A: No, as each country already has a combination of its own rules as well as those set out by various double tax treaties, which determine the implications of doing business in each country. This is unlikely to change.
Q: Is the UK likely to become more expensive to do business in?
A: This may happen if there is a shortage of skilled labour. The exchange rate however has significantly moved in favour of the US$ so it will become cheaper to do business in the UK.
So whilst there is uncertainty about the future, the outlook is positive. The UK remains an attractive place to do business. We just need the politicians to get on and provide the certainty businesses need.