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Brexit! It’s happening, but what is the immediate impact on business taxes in the UK? Whilst there should be no immediate changes for businesses and owners, there may be administrative issues to address over the coming months.

Assuming there are no last-minute changes, we officially leave the EU on 31 January 2020. Over time it is likely that this will bring in major changes to taxation and the way we trade, not only with EU countries but also with the rest of the world, including the USA.

However, from 31 January 2020, we will enter the “Implementation Period” – or transition period as some have termed it – until 31 December 2020. This means that the UK will continue to participate in the EU Customs Union and the Single Market, so (although it won’t have any voting rights on future legislation), it will still be bound by EU rules, the single market, customs union, free movement of people and EU programmes. Consequently, for the majority of businesses, there will be no immediate changes.

There are however some exceptions that do have potential tax implications.

Issues may arise because, although the UK continues trading as normal under the existing EU trade agreement with Europe, there is no guarantee that non-EU member states will accept us as an EU member and therefore apply the relevant tax rules in return. This generates potential complications in future transactions with non-EU members during the transition period. Going forward, UK entities may fall outside the scope of some domestic tax law provisions in individual EU countries, creating exposure to withholding taxes or necessitating additional administrative steps to achieve the current tax neutral position. Examples of these include (we don’t attempt to list everything as there are areas where administrative changes will occur that HMRC will communicate, e.g. relating to VAT):

  • Exemption from Controlled Foreign Companies rules for EU resident companies;
  • Tax consolidation, simplified reporting or tax groupings for EU resident companies;
  • Rules allowing tax neutral transfers of tangible or intangible assets between domestic and EU resident companies; and
  • Online claims for EU VAT refunds (per HMRC this facility ceases 31 January).

We are aware that there may be tax treaties that have provisions which rely on the UK being an EU/EEA member state. Therefore, post 31 January 2020 there may be an increased tax burden for multinational groups headed up by a UK entity. One example where this may apply is in relation to US withholding taxes.

What should you do now?

As set out above, there are limited circumstances where you are likely to see an impact between 31 January and the end of this year. We will share our knowledge regarding what the outlook is post 31 December 2020 closer to the time – at present you will appreciate that your guess is as good as ours!

If you do have any current concerns regarding how overseas territories will treat their transactions with your UK businesses or the impact on the group where there are EU based subsidiaries, then please get in touch. 0121 726 1717 (Birmingham), 0161 470 3011 (Manchester) or visit our website – www.claritastax.co.uk

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