UK Small Businesses Impacted by Brexit?
Now that the UK has voted to leave the EU, what are some of the potential key tax implications for your business?
It’s impossible to accurately determine the impact of Brexit as the terms of the exit haven’t been negotiated yet. Thankfully, much of the UK’s tax legislation is independent of EU influence so will be largely unaffected. However, there are a few notable exceptions that could affect your business.
The EU’s most significant influence over the UK’s tax system is with regard to VAT.
Once the UK leaves the EU, it may no longer be obliged to have a VAT system. In our view, VAT is here to stay and will be kept as an indirect tax due to the revenue it raises for the UK government. Being outside the EU might prompt some changes as the UK has more flexibility with rates it has to apply (i.e making women's sanitary products zero rated).
The UK may no longer be able to use the EU’s acquisition and dispatch system (accounted for on VAT returns). Instead there may be the imposition of “import” VAT. This VAT is likely to be recoverable but there may be an unwelcome cashflow cost for the period between the import and recovery for many businesses. This would impact the cashflow of companies that import goods and they may need to reforecast the levels of working capital needed to continue importing on the same scale.
Brexit may result in the UK leaving the EU customs union, meaning duties may be levied on exports and leaving UK exporters at a disadvantage.
Withholding tax on intercompany dividends, interest and royalties
Currently there is no witholding taxes between EU states.
Although the UK does have double tax agreements with all EU member states, not all levy a 0% withholding tax and therefore restructuring of UK/EU domiciled groups might be necessary to avoid additional tax.
Social security contributions
UK workers in EU member states could have to pay two lots of social security contributions unless the UK agrees to part of the overall EU system. This will impact UK employers who have large European based UK workforces.