In this first episode of The Tax Break, Ian Hyde and Mat Oliver, discuss the principle tax impacts of Brexit.
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Direct and indirect taxes
Brexit has had a more limited impact on direct taxes than on indirect taxes, as on the whole direct taxes are governed by UK law. However, some issues will arise as a result of the UK leaving the EU, including the following:
- there may now be some limited withholding taxes on cross border intra-group payments between UK and EU companies which are not eliminated by tax treaties; and
- cross border mergers will be more difficult between UK and EU entities.
DAC6, the EU-wide anti-avoidance tax, will be retained law in the UK but has now been modified so it only applies in limited circumstances in the UK.
Brexit will have much more significant impact on indirect taxes: in particular, VAT and customs duty because these were based on EU law.
Movement of goods
Customs declarations will now be required on movements of goods between EU and the UK. This will require determining the origin, classification and customs value of goods. Customs duties will not apply to goods imported into the UK from the EU (and vice versa) if relevant Rules of Origin requirements can be shown. However, given the importance of global supply chains, this is far from a complete elimination of customs duties. In any event, it will be important to get the paperwork right.
A simplified procedure will be in force, though, when importing goods from the EU to the UK prior to 30 June 2021.
Movements of goods into the UK are now imports for VAT purposes. To alleviate the cash flow costs on imports, UK import VAT can now be deferred, providing appropriate authorisation is obtained.
In addition, long anticipated changes to cross border supplies of goods are coming into both the UK and the EU. The UK has already implemented these, while the EU is changing its rules from 1 July 2021.
The new rules in the UK will also mean that there will generally be no obligation to account for import VAT on sales of goods by overseas businesses in consignments worth less than £135. Instead they will have to account just for VAT on the sale in the UK. There are also new rules for online market places, which switch the obligation to account for VAT onto them.
- Corporation tax changes are limited but may impact cross border transactions.
- VAT and customs changes are much more significant.
- There may be additional VAT and customs duty costs on cross border supply chains and businesses will be looking to restructure those if they can to minimise both direct tax costs and compliance burdens.