How EU Membership Affects Your Business Tax
Just like the actual outcome of the Brexit referendum, the impact on business tax for the UK is hard to predict. Primarily, any changes that affect businesses will be dependent on the type of relationship the UK cultivates with the remaining member countries. Whatever happens though, there are some areas where business tax could be severely impacted from a ‘leave’ vote in June.
The EU is currently the largest trade partner with Britain, and under the European agreement, goods and services flow freely across the region. However, if the UK were to exit Europe, import duties for SME’s could be considerable.
Even for those that feel a trade agreement would be quickly arranged, there would have to be some form of customs procedure, which would be likely at least to raise administration costs. Furthermore, a VAT charge might become payable at the point of entry for imported goods, separate from domestic VAT charges. Alternatively, a sales levy could become payable for goods imported into the UK.
Under current European legislation, the Parent-Subsidy directive insists that subsidiaries sending profits to parent companies across the EU should not be levied with a tax. If they do, the parent company receives a tax credit for the charge, thereby stopping a double tax on profits when the entire value is reported by the parent.
However, if the UK were to leave the EU, this directive would not be enforceable without specified agreements with each member country, and therefore a double tax situation could occur.
Relief on Losses
Although the UK does not permit the offset of business losses in other parts of Europe against UK income, the Court of Justice of the European Union has overturned this decision to benefit companies operating in differing parts of the EU. If the UK were to leave, the protection the EU provides on this issue would be dissolved, and those with loss-making subsidiaries abroad could see a significant rise in their overall tax bill.
Exit from the EU could also dramatically affect the impact of the Stamp Duty Reserve Tax. While the government wishes to levy a 1.5% charge on issues of certain shares and securities to raise extra capital in Europe, the current EU Directive overrides this policy.
This provides access to cheaper investment for business owners, a channel which would be put in jeopardy by a ‘leave’ vote.
There Could Be Some Benefits
Without Brussels mandatorily applying VAT to all produced items, if the UK were to leave Europe, the Chancellor would be able to levy 0% VAT on selected new items. This would eradicate the so called ‘tampon tax’ and offer the treasury greater freedom on which business taxes to apply.
Furthermore, the UK would be free to set its own level of tax relief within the Patent Box provided to companies heavily focused on research and development. Currently the EU are trying to bring Britain in line with other European Countries and stop the levels of respite being ‘over generous’. However, outside the EU, the UK could legislate its own criteria.
A ‘leave’ vote could also see a relaxation in the current restraints sanctioned by the EU on the levels of tax credits provided to Research and Development companies, offered via State Aid in the UK. Though we would still be confined by World Trade Organisation Policies, there would certainly be much greater room for manoeuvre.
As with all issues relating to business tax, it can be hard to see how such changes will impact your company. BHP can make it clear; simply subscribe to one of our seminars or book a one-to-one consultation to talk through your concerns. Though the full impact of the referendum will not be known for some time, we can make sure you are fully prepared.