With the UK’s withdrawal from the EU on the horizon, there’s likely to be a large number of changes in how the UK does business with Europe and the rest of the world. However, the effects to tax in a post Brexit world are actually less sweeping than one may have previously considered.
Tax Rates are set by member states
All members of the EU have the autonomy to set their own tax rates and these have always been vastly different in the UK compared to other EU member states. In Ireland, the corporation tax rate can be as low as 12.5%, whereas in the UK it currently sits at 20% (although it will reduce to 17% in the coming years). The UK will continue to set its own rates of tax.
This area is where the EU has the most control over tax laws and potential changes includes:
- Introduction of import and export rules between the UK and Europe with import VAT potentially due on the purchase of good from member states.
- Changes to the VAT MOSS scheme in the supply of digital products to individuals within the EU.
- The ability to recategorise the VAT rates of certain goods and services. For example petrol is standard rated, this could be changed to reduced or even zero rated.
- EU sales lists likely to be abolished.
- The Tour Operators Margin Scheme (TOMS) could be changed or abolished.
The UK will continue to be responsible for setting VAT rates.
There is likely to be little change in income tax rates as this continues to be a UK responsibility.
The UK will continue to set its own corporation tax rates and there is no reason why the proposed fall to 17% should change.
The dividend tax introduced to the UK on 6 April 2016 was set by the UK government and is not an EU directive.
The Tax System
All in all, the UK has always had autonomy over its own tax affairs and leaving the EU will have not have any significant upon the tax system in this country. However, Brexit has far reaching consequences for the UK economy and the tax system will be an effective tool to the government in helping to manage these changes. George Osborne’s emergency budget has been parked until there is more certainty around what a post Brexit Britain will look like, but expect to see changes once the long term effects are known.
With Scotland and Northern Ireland not backing Brexit, there are new calls for independence. Independence for these countries will have have considerable effects on the UK tax system.