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Brexit – Tax and Politics

This article is for general information only. Law and futurology are highly specialised areas and you should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article is for general information and does not constitute investment advice. Always consult an IFA.

Most legal and accountancy websites say you must wait until Brexit is implemented before planning because as nothing has been published they cannot advise you. This is sound, sensible (and very stodgy) stuff and not much help to the entrepreneur. This article looks at the underlying politics and what is likely to be the commercial result. The author does not express any political views here just adopts a “realpolitik” approach.

Assume current government stays in power.

This seems likely with next election in May 2020 which will probably be one year after Brexit. The current government will want voters to feel good and so we can expect the economy to be stimulated with inter alia a VAT cut. This has the twin effect of telling people we can manage VAT the way we want as this is an EU tax and will put extra cash into households.

If the government changes following an early snap election then there is no certainty.

VAT

VAT has never been popular with consumers and there must be a strong chance that shortly after Brexit it will start to change in ways which are unpredictable at the moment. Reform of VAT is a certain vote winner for middle England. Expect food and leisure items currently subject to VAT to be subject to reduced or no VAT. The current rules in which you pay VAT if you eat in but no VAT if you take away are likely to go. This will have an important effect on catering businesses. Unpopular proposals like VAT on pasties are unlikely to be resurrected.

There must be a possibility VAT will be renamed as “Sales Tax” or similar to emphasise the break from the EU.

Corporation Tax

This is likely to go down. The UK will be trying to attract non-European businesses to base themselves here and offering low corporation tax is a good starting point. Expect various specific tax exemptions because EU rules preventing state aid will not be so important. We have already seen talk of specific sweeteners for Nissan and this is likely to continue.

Non Domicile rules

The tax advantages for UK resident non domiciled people have been considerably reduced these past few years. Other countries have introduced them in one way or another. Expect the rules to move back so that it becomes more attractive tax wise. The government needs to offer personal tax breaks to wealthy people to bring capital and business skills to the UK.

Customs duty and VAT

Many consumer items are much cheaper outside the EU. Customs Duty and VAT make it expensive to bring them into the UK and effectively maintain higher prices. Expect this to start going early on. There may be particular agreements say with the USA and Canada for no or lower VAT and Customs Duty to apply on certain imports from these countries. This will stimulate business with these countries and result in changed purchasing habits by consumers. This will be politically popular.

Expect other Commonwealth countries to seek similar favourable Customs Duty/VAT arrangements with the UK. This will divert UK business away from the EU as these countries will have cheaper cost basis.

This could be a big story in 2017 as consumers hold off buying expensive items if they think they will become much cheaper once Customs Duty and VAT go or are reduced. As an example think about how much cheaper American cars are with no import tax. The UK government may find it has to start acting within the two year negotiating period.

UK residents with holiday homes in EU

There are unlikely to be any major changes here. The only immediate change in France could be the reintroduction of the requirement to appoint a tax agent on a sale of French property. There may also be changes for home owners who use English companies to carry out renovation works to their French properties.

The underlying commercial reality is that if there are closer trade, travel and tax arrangements with say USA and Commonwealth countries, destinations like Florida and the Caribbean will compete more directly with Spain, Portugal and southern France for British home buyers and retirees.

Employees

The UK government’s strategy is to encourage more non EU companies to move here. These companies will come from countries which generally do not have the same high levels of employee protection as the EU. In order to attract these non EU companies it is likely that UK employees’ rights will be reduced. Companies may want to start planning now how employment contracts are worded and how procedures may have to change.

Litigation

The jurisdiction of the European Court will end. This will mean challenges will be more restricted and cases heard on an Anglo-Saxon basis i.e. more restricted to the strict interpretation of the texts making up the law. It will mean fewer challenges to tax assessments. Issues such as discrimination will become less important.

November 2016

David Anderson

Solicitor and futurologist

Sykes Anderson Perry Limited