Unlike previous elections, Brexit is an extra dimension to consider in assessing the possible taxation impacts of the 2019 election on your business.

The impact of Brexit cuts across customs, VAT and international tax and transactions.

Here is a quick summary of how the Brexit policies of the major parties would affect business taxation.

Conservatives - “get Brexit done”

The Conservative manifesto pledges:

  • to leave the EU by 31 January 2020
  • not to extend the transition period beyond 31 December 2020
  • to keep the UK out of the single market (and EU VAT system) and any form of customs union.

Indirect Tax and Customs implications

New customs arrangements will therefore apply from the end of 2020. Avoiding any form of EU customs union means that additional customs administration will be needed for EU-UK imports and exports from 31 December 2020.

The new Brexit deal agreed with the EU in October would create special status for Northern Ireland and therefore cross-border administration requirements should be considered by businesses.

Brexit also creates VAT changes, which will depend upon precise distribution models and supply chains for sales from the UK to EU. The rules vary across each EU member state, so it is important to check what rules are relevant to you.

There may be new Tariff barriers too. Boris Johnson has said he will seek a zero-tariff trade agreement with the EU, but this could prove incompatible with his aim of enabling divergent regulatory regimes in the UK. 

Full details of the indirect tax implications of Brexit are set out here.

The Conservatives have also pledged to set up “Freeports” outside UK customs to avoid taxes on imports. Some further detail on the plans for freeports and what it might mean can be found here.

Direct Tax implications

Leaving the EU with, or without a deal will give rise to Withholding tax changes on royalties, dividends and interest from EU subsidiaries to a UK parent. In addition, any changes in activities undertaken in the UK and EU will need to be considered from a transfer pricing and a cash repatriation perspective.

There may also be some international tax treaty implications from 31 January, where for example the UK benefits from EU tax treaties with third countries.  

Labour - soft Brexit and a second referendum

On Brexit, Labour is committed to:

  • negotiate a ‘soft Brexit’ deal including a customs union with the EU;
  • put this to a 2nd referendum, with “remain” as an option.

Indirect Tax and Customs implications

Depending on what they can negotiate, some form of customs union with the EU could alleviate customs administration costs and would imply zero tariffs. The precise treatment of VAT arrangements will need to be seen.

Direct Tax implications

Withholding tax considerations are likely to still bite with a soft Brexit.   

Transfer pricing needs to be considered in any structural changes of location of activities post-election. Specifically, as regards multinational corporations, Labour proposes treating groups of companies under common ownership as unitary enterprises so that profits are treated as arising where economic activity occurs or value is created using formulary apportionment.

What happens if there is no Brexit?

The Liberal Democrats and SNP policy is to halt Brexit. Brexit could also be stopped if, under Labour or a hung parliament, a second referendum voted in favour of ‘remain’. 

This would avert changes to UK-EU customs and VAT regimes and withholding tax implications.

It would, however, mean that the UK continues to be a full participant in evolving EU tax rules; and business will need to follow the tax agenda of the new EU Commission under Ursula von der Leyen (which could include measures on transparency and fairness, digitalisation and climate change).

Finally, Brexit or no Brexit, hard or soft, it is worth remembering that OECD actions on international tax will impact business whatever happens.

For more information on the Tax implications of Brexit visit our dedicated Brexit hub:

https://www.grantthornton.co.uk/brexit/