Regulation  

Taxes set to be changed as a result of Brexit

Taxes set to be changed as a result of Brexit

The reshaping of the UK’s relationship with the EU will determine the future direction of the UK tax system, according to George Bull, senior tax partner at accountancy firm RSM.

As the Chancellor George Osborne announced that there would be no immediate emergency Budget, Mr Bull gave his views on the impact of the decision to ditch the EU on the taxes paid by advisers’ clients.

He said the referendum had held up around 40-odd pieces of tax legislation which would now be reactivated. Most of these will come into force between late 2016 and April 2017.

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In the period prior to exit, Mr Bull added that two key principles guide the application of taxes within the UK. Direct taxes are imposed by UK law but currently they must be operated in accordance with EU law. VAT is both imposed and operated in accordance with EU law.

For direct taxes particularly, within these broad constraints, Mr Bull said the rates of tax and structure of the tax system would be set in accordance with the requirements of the tax-raising powers of the parliaments in Westminster, Holyrood and Stormont.

Mr Bull said the UK has had a number of disagreements with the EU over the scope and operation of UK taxes. These include patent box; changes to the taxation of controlled foreign companies; differential rates of insurance premium tax; and capital duty.

Once the UK has ceased to be a member of the EU, Mr Bull claimed both the tax rates and the structure of the tax system would be determined according to the needs of the three parliaments, but subject to the terms of the UK’s settlement with Europe.

On the direct tax front, he forecast a number of changes. For many groups of companies, Mr Bull said the number-one direct tax annoyance was UK-to-UK transfer pricing, caused by the requirement for the UK tax system to be EU-compliant.

If the government wished to do so, Mr Bull said it could abolish these rules so that transfer pricing only applied to transactions between UK companies and those overseas.

For EU state aid rules, subject to the terms of the exit settlement between the UK and the EU, Mr Bull said these would no longer prevent the UK government from giving selective advantages to companies via advance tax rulings.

Incompatibilities between UK tax law and the EU would cease to be a problem on exit, Mr Bull said.

He added it was open to question what would happen to the disputes currently before the courts potentially involving billions of pounds.

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