Brexit or Bust – What Next?

By 8th July 2016 Business, Featured Business

brexit or bust

Written by Simon Gray, Tax Partner, Hentons

Whether you are excited, concerned or confused about Brexit, it has become a reality. As business owners, we now have an obligation to understand the implications in order to shore-up our investments and ready ourselves for any opportunities that may arise.

In this article we will set out the economic, tax and VAT implications of our Brexit future.



International financial markets respond quickly to shocks, but the economy takes longer to find its level. The FTSE may have bounced back, but the true economic effects of Brexit may only become clear in the months and years to come.

There are many questions that remain unanswered, will the bank rate be reduced to zero? What will be the impact on house prices and our exchange rates? Will there be more Quantitative Easing (QE)? Only time will tell.



Corporation Tax (CT) rates come under UK domestic law and Osborne’s proposed cuts to CT (to 15% or possibly below) will make the UK more competitive.

However, there are some elements of CT that may be affected, such as cross-border group relief and exit charges.

Upon leaving the EU we will no longer be bound by the EU’s ‘State Aid’ rules which broadly preclude member states from offering too generous an incentive to certain sectors (e.g. manufacturing) to the disadvantage of other sectors. A consequence of this is a potential future enhancement of the UK’s R&D Tax Relief regime.



As with CT, we can expect little change if the UK remains in the EEA (European Economic Area). However, if the UK is not constrained by EEA membership, the government is likely to want to repeal changes it was forced to make to the ‘Transfer of assets abroad legislation’.

Although this was anti-avoidance legislation, it was found to inhibit both freedom of establishment and freedom of movement of capital, and was the subject of EU infringement proceedings taken against the UK in 2012.

Upon exit, there is nothing stopping these rules being repealed.



The Recovery Assistance Directive and the Administrative Cooperation Directive require EU member states to cooperate with each other in relation to the collection of tax across borders, including the exchange of information and assisting in the recovery of tax claims.

Leaving the EU means the UK would cease to benefit from these arrangements.

However, the UK is one of 100 jurisdictions which have signed the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which has similar effect.



VAT was introduced in the UK in 1973 as a condition of us joining the ‘Common Market’, as it was then. Although it is a wholly EU construct, VAT is worth too much to the Treasury to abolish; (the current UK VAT take is c£130bn per annum). It will not be completely rewritten, although the odd nip and tuck are inevitable.

The UK will be free to set its own rates and exemptions. There are some intriguing possibilities, such as whether we bring back zero-rating for the grant of a major interest in commercial buildings (as currently applies to residential buildings). However, too many taxpayer friendly changes will undermine the very purpose of retaining the tax (i.e. healthy revenue generation).

The common EU VAT system will continue to evolve; we will not be bound by its rules but it is likely we will keep a close watch and, where appropriate, carve out our own parallel path.

It is in no-ones interest to deviate too much, as in say the case of cross-border transactions, especially for double or non-taxation to arise.

In summary, some areas will be more affected than others and there is much we can do much to minimise the potential impact, and indeed take advantage of any opportunities arising.


Having in place a proper tax and financial planning strategy is always important, but this is now even more the case. Hentons are ideally placed to offer expert, proactive advice on your business and personal finances, from dealing with tax and compliance issues, to support with financial forecasting and strategic planning.

Whatever the future holds, we are able to assist with your business, tax and financial planning needs, both now and in the years to come.

Please contact Simon to have a chat about how we can support you through this time of uncertainty.

Simon Gray

0113 234 0000

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