On 31st January the UK officially left the EU, and entered into a transitional period which the UK government has said they will not extend beyond 31st December 2020. During this transition period, EU law continues to apply to the UK as if it were still a member state. Therefore UK/EU operations will for the most part remain as they currently are.
During 2020 the UK and EU will negotiate the details of their future relationship, and the expectation is that the economic relationship will take the form of a free trade agreement ( FTA ). The ambition is for this to be comprehensive, to cover both goods and services. If a FTA cannot be agreed, then a ” no deal ” scenario would result.
There are a number of tax areas that we know will change, irrespective of whether a FTA is agreed. Businesses should start to plan for this new era sooner rather than later.
Customs duties are expected to give us some of the more significant changes. Products will need to meet the rules of origin, and businesses will be required to submit customs declarations to prove origin.
VAT will also change, as the movement of goods between the UK and EU become imports and exports. Import VAT will become payable, which may potentially create cash flow costs, but the UK is expected to introduce postponed import VAT accounting for goods imported from both EU and non-EU countries. Supplies of services by UK businesses to EU customers is likely to be treated in the same way as supplies currently to non-EU recipients.
There will be changes to Corporate tax, as certain withholding taxes may become due on payments of royalties or dividends.
From a personal tax perspective, the change to immigration rules will be a key impact for many businesses. Also, the social security position will need to be considered for mobile employees. In the absence of any agreement, we could find ourselves with dual social security liabilities arising in both the UK and the EU state.
Finally, Northern Ireland ( NI ). Whilst NI will remain in the UK customs territory, EU customs rules will apply here. No border checks will take place on the island of Ireland, so these checks will take place elsewhere and may create additional administrative workloads. To further complicate matters, NI will remain subject to EU VAT rules for goods, but not services.
Our own advice is that whilst the situation is currently uncertain to say the least, that businesses should start to plan now for areas of change that may impact their own particular trade or industry sector.