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The tax implications of Brexit


The tax implications of Brexit

The tax effects of Brexit have been a hot topic of conversation in the office over the past few months. You can understand why. Businesses and individuals alike are facing an extended period of uncertainty, and everyone is trying to understand what the implications of Brexit will be for them.

No one will fully know how Brexit will affect the tax positions of individuals and businesses until the exit negotiations have concluded. Whether or not we remain in the European single market will likely determine how many European directives will continue to apply. At present it is uncertain whether the country will still be in the single market or whether the government will opt for ‘hard Brexit’.

Direct taxes

UK law controls the rates and exemptions on direct taxes such as corporation and capital gains tax. When the UK leaves the EU (currently estimated to take place at some time in 2019) much of the existing framework will remain in place.

Despite this, UK tax policy will presumably have to be fitting with the foundations of EU law, specifically the 4 freedoms of goods, services, capital and people.

One of the most important directives to affect direct corporate taxes is the Parent Subsidiary Directive. This provides relief from withholding taxes on dividend income made by subsidiaries operating in different EU member states, and prevents companies from being taxed twice on profits made by subsidiaries.

This directive will no longer apply if the UK leaves the EU and the single market. As a result UK companies could face withholding taxes and double taxation unless the UK negotiates individual tax treaties with each EU country.

Indirect taxes

Like direct taxes, UK law determines indirect taxation policy. However, EU directives and regulations have a much greater influence over indirect taxes, potentially leading to bigger changes should the UK leave both the EU and the single market.


No large-scale changes can be expected from the UK’s domestic VAT rules. However, the UK will have greater scope to introduce tiered VAT rates and further exemptions after leaving the EU.

Cross-border transactions are likely to see larger changes. VAT MOSS returns on digital services may no longer apply and travel and tourism businesses may not have to account under the Tour Operators Margin Scheme.

However, as with everything else, we will not know the details until the UK and EU finish the negotiating process.

Contact us

Has Brexit made you feel uncertain about your business prospects over the next few years? Try talking to one of our advisers. We can’t predict exactly what will happen in the future, but we can help position you to both capitalise on Brexit’s opportunities and cope with its downsides.

Contact us on 01628 631 056 or email tracya@knightandcompany.co.uk for further information.