While Britain’s exit from the EU is scheduled to conclude in just two years, there is still considerable uncertainty as to the format of British/EU relations post Brexit. Will it be a ‘Hard Brexit’, with Britain no longer part of the EU VAT or customs free trade area (FTA), or will it be a ‘Soft Brexit’, with Britain remaining a part of the European FTA, but possibly no longer part of the EU VAT area (similar to Norway). The Brexit tax and legal considerations are as follows:
- If Britain leaves the EU VAT Area, cross border trade will no longer be zero rated for VAT purposes. It will be necessary for importers to account for VAT at point of entry on Ire/UK trade, which can then be reclaimed assuming they have full recoverability – this will result in an additional administrative and cash flow burden for traders.
- If the UK leaves the customs union, it will be necessary to account for import duties at up to 30% at point of entry into the UK – this will be a very significant irrecoverable cost for traders.
- If goods are imported to Ireland via the UK there is a potential double charge to customs duties, once on entering the UK, and a second time on entering the EU/Ireland. Companies importing to Ireland via the UK need to be looking at bonded-warehousing arrangements to avoid this double charge.
- The general opinion is that there will not be a hard border and customs returns / payments will be accounted for on line – subject to Revenue and HMRC having appropriate systems in place within 2 years.
- When considering new contracts and business ventures in the UK, companies should bear in mind that there will probably be a return to withholding tax on cross border dividend, interest and royalty payments within 2 years.
- Companies negotiating contracts at the moment should include a ‘Brexit Clause’ to set out how any additional tax / admin burdens will be dealt with post Brexit – and possibly even a Force Majeure clause voiding the contract if it becomes unworkable post Brexit.
- Existing contracts will need to be reviewed to see if they need to be amended to reflect the fact that post Brexit EU law will no longer apply within the UK.
- Companies with EU registered patents /trademarks etc will need to ensure that their IP is protected within the UK post Brexit.
- Some industries (such as pharma & food) could face a significant additional regulatory burden as their products need to be approved in the UK in addition to the EU.
- The general consensus is that there is still a lot of uncertainty regarding Brexit and while companies should be preparing for it as outlined above, it is a bit early to be taking major steps (such as opening UK branches etc..) which might ultimately turn out to be unnecessary.
For more information contact us at 01 6765333 or by email here to speak with an advisor about your own concerns in relation to Brexit.