VAT

VAT is an EU tax, implemented mainly by Member States following an EU Directive, although the VAT legislation also includes some directly applicable EU Regulations.

The immediate effect of Brexit would not remove VAT as, although an EU tax, it is implemented in the UK mainly by UK legislation. Although, the UK would no longer be tied to the requirements of EU Directives and could abolish VAT altogether, this is not considered to be very likely, given the government’s need for tax revenue.

The UK Government may generally wish to vary the items chargeable to VAT and applicable rates, however, these would unlikely be major changes, due to the VAT contribution to Exchequer revenues. Brexit will, however, cause confusion amongst the business community and wider public, disrupting a well-established pan-European tax.

Insurance Premium Tax

Insurance Premium Tax is a UK tax and will not be directly affected by Brexit. Insurance is exempt from VAT.

Customs duties

The UK will leave the EU Customs Union. It will be essential to legislate a new UK customs code, including coverage of the import and export of goods to and from the EU. With the co-operation of the remaining EU Customs Union, it may be possible to negotiate at least some appropriate rates.

Future customs arrangements would be heavily dependent on the exact terms of the UK’s future relationship with the EU and any existing international trade agreements, in particular the World Trade organisation rules.

Direct Taxes

Direct Taxes (income tax, capital gains tax, corporation tax) are a competence of individual Member States and so are imposed by UK and not EU law. In theory, therefore, there should be little immediate effect on direct taxation. In practice, although a responsibility of Member States, direct tax rules still have to comply with treaty freedoms and other relevant EU laws.

These constraints would, in theory, no longer apply. The UK’s ability to make changes which would conflict with EU law may, of course, be restricted under the terms of any future agreement with the EU allowing full or partial access to the Single Market.

Transfer taxes

The UK’s Stamp Duties are not likely to be affected, although the Capital Duties Directive may no longer apply, giving the UK freedom to re-impose Stamp Duty on new share issues should the Government so wish.

Corporate tax base, harmonisation

This has not progressed very far in the EU, largely due to UK and some other Member States’ opposition. However, it has recently been raised again by the European Commission in connection with supporting OECD initiatives to improve international tax compliance. The harmonisation may progress faster in an EU without the UK, and the possibility arises of the UK having to fall in line as a condition of market access and in order to maintain acceptable Double Taxation Agreements going forward with EU Member States.

International agreements

Tax law in the UK also derives from international agreements. The UK is a party to OECD agreements, double taxation conventions and other international agreements and is a member of bodies such as the WTO. Double taxation agreements, for example, will continue. With time, however, benefits may prove more difficult to retain as agreements come up for renegotiation.

Other agreements may, for the time being, offer limited protection against higher tariffs and duties. The EU has the benefit of a number of free trade agreements, to which the UK will lose access. The UK will have competence to conclude its own trade agreements, although on what terms and how quickly is uncertain.

For more detail, please see our Brexit article How taxing is Brexit?.