14 March 2016

Brexit in Brief: Tax


The member states of the European Union have always kept close control over their own tax systems but even so, Europe has had a huge influence over the UK tax system ever since it started and that is going to raise the question of what would happen if the UK did leave the EU. Would we see huge tax changes in the UK?

VAT is the obvious area where we would expect to see some changes and that is because VAT is an EU-led tax as it stands so it will have to change.

That being said, it has been a huge revenue raiser for the UK Government over the years so it is very unlikely that we would see it abolished completely. We would expect it to be replaced by something similar and possibly almost identical.

Another area where we would expect to see some changes: at the moment there are several business-friendly EU directives, which are helpful, for example, for corporate groups. If we were to leave, they are likely to lose benefit of the parent subsidiary directive and the merger directives, all of which help them reduce their tax bills.

The final area of change is probably a common theme, but UK tax law has been very influenced by EU laws restricting anti-competitive activities. If you look over the past 10 years, the UK Government has had to change several pieces of UK tax law because of European law challenges to its validity. It’s possible if we were to leave the EU, the government might relish the flexibility in some of those areas and look to make changes to the law. That said, in terms of the Brexit vote and what would happen immediately, UK law is still UK law and it will stand; nothing will automatically change on a Brexit vote but it’s possible that in the coming years we will gradually see incremental changes to the UK legislators’ attitude towards tax. Of course, they will still be subject to other international law constraints, with the OECD initiatives being influential in this area.

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