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Key points
- Possible changes to the withholding tax regime.
- Many business owners will have no experience of trading before the UK was an EU member.
- UK corporation tax could be cut in an attempt to stimulate growth.
- The tax legislation should be understood by business owners and taxpayers, not only by advisers.
- Brexit could provide the opportunity to simplify the UK tax system.
The proposed Brexit deadline of 31 October is coming up fast and businesses across the UK have been working over the past three years to plan their finances around the various scenarios the country may face. One area that will see major changes is tax. Whether it is managing the impact of a no deal Brexit or adjusting to a new set of rules and law that govern how we work with other member states, British businesses will be taxed differently in the near future.
Challenges with VAT and customs duty
The main implications of Brexit have been concentrated on VAT and customs duties. However, the current benign EU directives, that enable money to pass within companies in EU corporate groups without any withholding tax, will disappear on Brexit. Potentially, the change will have an impact on the more than 200,000 UK businesses that trade with EU countries and in turn make the UK a less attractive investment opportunity for business transactions.
As well as the obvious financial challenges this presents, there is a huge volume of technical information that business owners will need to understand to survive. Particularly when looking at small to medium-sized enterprises, many business owners will have no knowledge of trading before the UK became a member of the EU.
Time for action
The government must take action to stimulate the UK economy and there are some obvious tactics that could be used to generate growth.
- Corporation tax rates could be cut in order to stimulate growth and attract inward investment.
- Tax incentives that are currently restricted or unavailable due to state aid rules may be introduced. One example could be an increase in reliefs such as research and development tax relief to encourage additional investment in the UK.
- Investor reliefs could also be enhanced such as the enterprise investment scheme to encourage the flow of capital into less traditional investments.
While these are all sensible ways to help the UK economy re-adjust, in our view, the potential changes that will come with Brexit fit with a wider trend that we have observed: that the UK tax system needs to change. The tax system has grown more complex under consecutive governments, while not keeping up with an increasingly global world.
Brexit is an opportunity
Brexit provides the government with the perfect timing to review its taxation system and make it fit for today’s global market, making the UK as attractive as possible to both international and domestic investment. A new tax regime should be built to encourage competition within businesses and make the market easy to enter for international businesses.
What is needed is a concerted effort to make the UK tax code as simple as possible so that it is capable of being understood by business owners and taxpayers rather than only by tax professionals. It also needs to be able to deal with current issues such as the development of crypto-currencies and similar technology – the government has the opportunity to be bold and to take the lead on these issues.
No matter what the result of Brexit discussions, the UK government now has an opportunity to clean up the tax system. If we can reduce the complexity, we will encourage investment into the UK and create opportunities for businesses in the long term. With the present political uncertainty, there has never been such a good time to change the system so we can create a buoyant and strong economy.
