Blog: What will Brexit mean for tax?
Iain Masterton, a director at Edinburgh-based accountants Chiene + Tait assesses what will be the tax implications of Britain leaving the European Union.
It’s often said that a week is a long time in politics but this doesn’t seem to apply to the Brexit negotiations where, despite plenty of rhetoric from both sides, there’s been little tangible evidence of progress towards a deal.
As the political narrative becomes increasingly polarised, it is left to the business community to flag up important issues which, if not addressed, may prove detrimental to any UK businesses that buy and sell goods and services within the single market.
The potential for ‘no deal’ to paralyse the HMRC is one such issue. With a hard Brexit currently on the cards, including departure from the single market and customs union, the UK’S tax collection authority is facing a huge strain.
A recent White Paper confirmed that the UK government is currently proposing a post-departure, two year transitional period where the existing customs union would remain in place with no tariffs applicable to goods moving between the UK and EU. This would then be replaced with a new but, as of yet, undetermined agreement.
One worrying aspect of this plan, which has yet to be even discussed with the EU, is that it would likely become null and void should the Brexit talks end with no deal in place. In these circumstances, which are far from implausible, a huge influx of resources to manage a new wave of trade duties between the UK and the rest of the EU would be required.
HMRC, which has already just announced plans to recruit up to 5,000 new staff in light of Brexit, could still find themselves short-staffed to deal with the more rigorous checks required on goods imported from the EU into UK ports, as well as customs applications and requirements for business support on technical matters if no formal agreement can be reached.
Despite the potential economic chaos resulting from such an outcome, there is currently little the UK business community can do beyond its repeated calls for the government to negotiate with greater clarity and urgency.
There are, however, a few practical measures that businesses can run with as contingency planning. As well as forecasting the impact of additional costs on imports of goods from the EU, they can also judge whether they might need to operate customs duty deferment accounts; utilise facilities such as inward processing relief; or use freight forwarders to deal with any additional red tape and documentation from the UK being suddenly removed from the customs union.
We currently have no idea what outcome will prevail and if it will result in UK companies suddenly facing significant tariffs to continue their trade within the EU. It’s an important issue which the government needs to address quickly.