Likely changes to UK taxation following Brexit - In brief

Following Friday's referendum results, it is inevitable that some aspects of UK taxation will need to change to accommodate the effects of extricating the UK from the EU.  The impact of the EU, in this respect, has mainly been on indirect taxation and non discrimination between domestic products and services and those imported from/exported to other Member States.

The UK VAT system has allowed for the zero rating of supplies made to customers in other Member States where the VAT number of the customer is disclosed to the supplier at the time of supply. Should this practice come to an end, the result would be output VAT being invoiced to the customer for them to then domestically reclaim the VAT suffered . The competitiveness of UK exports would be compromised, both in terms of increased price and the ease with which the customer is able to obtain relief for the VAT suffered, in terms of administration burden and cash flow timing.

Changes to the EU place of supply rules for digital services only came into force on 1 January 2015 and have involved huge changes in those businesses caught by the measures. The use of the VAT Mini One Stop Shop (VAT MOSS) has hugely simplified accounting for VAT across the EU Member States.  Should the use of VAT MOSS be withdrawn from the UK, then a business would be obliged to register for VAT in each EU Member State they make relevant supplies to, pay VAT and file VAT returns in each of those Member States - a considerable burden indeed.

Legislation relating to direct taxation has had negligible EU influence. However an important impact of EU involvement has been the ability to treat qualifying furnished holiday lettings (FHL) in the European Economic Area (the EU Member States plus Iceland, Liechtenstein and Norway) as a trade rather than a property rental business. This may be advantageous as profits from FHL are considered as net relevant earnings for pensions, capital allowances are available on qualifying purchases and Capital Gains Tax rules are applied to FHL. The availability of this treatment may be withdrawn or may require renegotiation with the other members of the EEA.

I would anticipate that there will not be any changes to the existing double taxation relief treaties that the UK currently has with countries across the world. These have been negotiated on an individual country basis rather than through the EU for EU Member States.

In common with other aspects of exiting the EU, it is not clear exactly what will change or when. We can only wait, see and hope that fair arrangements are settled upon.