Although the Brexit process is anticipated to take at least two years it is worth considering the possible tax consequences of leaving the EU.

Indirect Tax

The UK is part of the EU Customs Union and therefore goods can be moved to and from other member states without duties (either customs duties or import VAT). There are reduced compliance obligations on intra-EU transfers.

Unless the UK negotiates otherwise then goods brought into the UK from the EU will be subject to import VAT and import duty. Conversely goods exported out of the UK and into the EU will be subject to EU import VAT/duty.

The EU has negotiated favourable terms of export to third countries and the UK may lose the benefit of these rights. However the UK will no longer be bound to EU rates and tariffs and therefore may be able to reduce costs of importation or negotiate separate (even more favourable) terms of exports to third country.

The rate of VAT in the UK is controlled by Brussels. On leaving the EU these restrictions will be lost and therefore the standard rate of VAT may change and/or the items to which the zero rate applies extended.

At present there is a process allowing the UK to recover VAT incurred in other EU countries. This involves access to a single portal on the HMRC website.  Although recovery will still be possible after Brexit the administrative process is likely to change and therefore there may be delays in future recovery of EU VAT.

Direct Tax

Direct taxes are broadly determined by member states without direction from Brussels and therefore there should be little impact on direct tax rates. Irrespective of this independence there are UK rules which have been specifically designed to be compatible with EU law and EU freedoms. Those rules can be repealed or varied.

Some tax reliefs are subject to EU state aid considerations and cannot be implemented without EU approval. Theoretically those reliefs could be expanded considerably.  However the UK will remain a member of the OECD and therefore subject to OECD harmful tax practice considerations.  These considerations are likely to restrict the introduction of very generous tax reliefs.

Withholding Taxes

There are exemptions from domestic withholding taxes for payments to EU members. After Brexit those exemptions would not necessarily continue and the rate of withholding tax would be determined by the tax treaty between the UK and its European neighbours.  In the absence of any other agreements this would suggest an increase in withholding taxes on both inbound and outbound payments.  Arrangements with gross up clauses (i.e. the recipient receives a certain sum and any withholding tax is a cost to the payer) would need to be managed carefully.

The UK does not have any outbound dividend withholding tax and therefore dividend payments out of the UK would remain unaffected.

Social Security

There are specific rules which apply to EU residents who work in another member state. They are designed to restrict the social security contribution to one state and determine which state that is.  These rules may not apply after Brexit and this could lead to double taxation for some internationally mobile workers.

Timings for change

Any changes are not likely to be immediate. I would anticipate that Budget 2018 would prepare the country for any changes in our domestic taxation.

The reality is that no-one really knows the taxation impact of Brexit and the extent that some, or all, of the above occur can only be determined with the fullness of time.