What Are Some of the Indirect and Direct Tax Implications of Brexit?

Brexit has been all over the news for the last few years and it is set to go ahead in the very near future. Therefore, this is the perfect time to refresh your memory on the potential tax implications of the UK leaving the European Union, both the direct and indirect ones.

Changes to VAT

One of the most notable tax implications following Brexit concerns VAT or value-added tax. The United Kingdom will definitely see changes to its laws regarding VAT since it will no longer need to comply with the EU VAT-related regulations. This lack of compliance not only applies to rates, but also to the zero ratings and scope of exemptions. This will translate into increased flexibility in that respect. Since the UK is still struggling to come up with a deal before Brexit takes place, it is safe to say that the country has not yet worked out all the details, one of which is likely VAT.

In the future, the United Kingdom’s government could perhaps make various changes to the VAT that would not be possible if it were still part of the EU. This could include changes like restoring VAT relief for products that save energy or reinstating zero rating for domestic fuel. There is no telling what changes to the VAT future UK governments will choose.

Businesses will also have to worry about adjustments to corporate taxes related to VAT. There is a very good chance that VAT processes and rates will change for cross-border transactions once the United Kingdom is no longer in the EU, but this is still not a given.

Changes to Customs Taxes

A seemingly obvious tax implication of Brexit relates to the customs taxes or duties. As part of the European Union, there is no customs duty to worry about when it comes to bringing items in or out of the UK from another EU country. Once Brexit occurs, however, any trade done with EU member countries will be considered an import or export.

That may or may not impact the customs taxes, but it is possible to do so. Customs taxes are among the various details that are likely part of the plan the United Kingdom’s government is working out. Those who regularly import or export goods or anyone who prefers to purchase international groceries or other items should pay attention to the customs-duty-related aspects of the Brexit deals in progress.

To get around this, duty-free sales during travel to or from EU member states may be reinstated. Keep in mind that in 1993, the Single Market involved the EU introducing minimum duty rates for energy, tobacco, and alcohol in addition to structural restrictions on taxes. Following Brexit, the UK may make changes depending on the deal that the UK and EU end up agreeing to.

Implications for Direct Taxes

The above issues are all indirect tax implications, but what about direct implications? This would come down to what the member states of the EU decide. The United Kingdom has previously used its veto power for tax policies since those decisions require unanimity. With that vote, the EU was unable to make changes to direct tax policies. Since then, however, other member states have raised concerns about other tax issues, such as the Digital Services Tax, so the lack of an EU veto vote will not necessarily mean tax incursions go ahead.

As it stands, the lack of a Brexit deal means there is still a reasonable amount of uncertainty regarding the entire process, including how Brexit will impact taxes directly and indirectly. Since the focus has been on crafting a Brexit deal, there has not been much public discussion so far of planned tax changes on the part of the UK once it has the freedom to do so.

Sources:

http://www.kingpininternational.com/news/article/direct-indirect-tax-implications-brexit/

https://www.instituteforgovernment.org.uk/explainers/tax-and-brexit

https://smithandwilliamson.com/en/insights/brexit/potential-tax-issues-from-brexit