So the UK has voted to leave the EU. Despite the fact that 62% of Scots (and 74% of Edinburghers) voted to remain, the UK vote of 52% for Brexit has prevailed. The value of the pound and the stock market have slid this morning, the Prime Minister has announced his resignation, but for many business owners, life will continue as normal for the time being.
We won’t know when the UK will actually wave its goodbye to EU membership until it notifies the European Council of its intentions under Article 50 of the Lisbon treaty.
There will many changes over the coming months and years, but for now let’s look at how the Brexit could affect SME’s in Scotland and the rest of the UK.
- VAT – the Downside
After Brexit, B2B sales of UK goods into Europe, and B2B purchases of EU goods into the UK may no longer be zero rated. Instead they would become exports and would need to clear customs and incur import charges. This creates a cashflow disadvantage as there is a delay in recovering the input VAT.
UK companies required to register for VAT in some EU member states will need to appoint a local accountant to deal with their returns.
It is possible that the VAT MOSS scheme ceases to apply for UK businesses engaged in Digital supply, although there is already a non-union VAT MOSS that exists for businesses based outside the EU.
- VAT – the Upside
The UK Government could actually abolish VAT altogether, but this is unlikely as it makes up 22% of all tax receipts.
The UK’s VAT system would no longer be governed by EU law. The UK could set its own VAT rates and decide which services are eligible for reduced rates and exemptions.
The burden of filing EC sales lists would disappear.
- The impact of Customs Duty
The UK would leave the EU’s Customs Union. EU customs duties would apply to imports from the UK, making it more expensive for EU consumers to buy goods from UK companies.
Both EU imports and exports would need to ‘customs cleared’ which would add complexity, cost and time to UK businesses value chains.
- New Tax Incentives?
Without having to consider EU state aid rules, the UK would have more scope to expand the investment limits on tax efficient investment schemes such as VCT and EIS, and some employee share schemes.
With the EU rulebook withdrawn, another option would be to offer regional corporation tax reductions to encourage inward investment in regional areas, such as Northern Ireland.
- Policy Changes
The Brexit will give the UK more freedom to change other areas of Government Policy previously subject to EU rules. These include Data Protection, Competition Rules, Anti-Money Laundering, Financial Services, Pensions, Workers Rights and Consumer Rights.
ICAS has posed many more questions on What Happens Next, and the BBC and Guardian have posted useful articles which covers various financial matters including the impact on house prices and interest rates. Accountants and tax advisers are sure to be kept on their toes for the foreseeable future…