Brexit: how will it affect us?

Brexit: Will it affect us? Will it affect tax? There is huge uncertainty as to exactly how and when the UK will impliment Britain's Exit from the European Union (Brexit), and even less certainty as what will come in its place.

• The UK is not going to stop trading with Europe: it may have to re-negotiate its trading relationship:
• If we leave the Single Market the default position is World Trade rules. In practice, it will need to make a new trade agreement with the EU.
• The type of relationship with Europe can be modelled on a number of different relationships that already exist, already, as already happens with the EU and Canada, Norway, Switzerland and the USA.
• The trading relationship is multifaceted: this may affect our imports and exports of all types of goods and services.
• Our relationship also covers EU law, this again covers trade agreements, taxes such as VAT and many different branches of the law from employment rights to food and drugs standarisations.
• Almost all non EU countries who have relationships with the EU pay a cash contribution to the EU. 
• The UK is required to pay cash contributions to the EU on leaving: this appears to be in respect of the pensions of existing EU employees, but this is unclear.
• Beyond trade the UK needs to work out its keen relationships in respect of Nato and defence, the supply of power and manpower.
• Immigration has been a major concern to UK voters. At the time of the original referendum nearly all news outlets were obsessed with flow of immigrants from various war torn countries notably Syria and certain African states. Subsequently, the EU has assisted countries such as Turkey in setting up refugee camps.
• If UK decides that it wishes to create its own legislation to replace EU regulations for taxes where the EU rules prevailed pre-Brexit, any changes will take years to impliment. The EU courts will continue to make law during the Brexit process and there are ongoing tax cases which are still looking at EU court decision. It is likely that the government will impose 'caretaker' legislation which will effectively mirror the EU regulations and also provides a cut off date for case decisions. 

The UK might:

• Become a member of the EEA.
• Negotiates a bilateral treaty with the EU (similar to those say negotiated by Canada and Switzerland).
• Exit the EU in full: 'hard brexit'

The table below provides an indication of what the first and third of these could mean for direct and indirect taxes. 

The tax issues arising from a bilateral treaty depend entirely on the terms negotiated. Based on the Canada and Switzerland agreements it is likely that some EU rules would need to be adopted such that the position would be similar as for EEA membership.

In the absence of a crystal ball, this all remains speculative.  As HMRC’s phoneline message says it is therefore very much a case of ‘business as usual’ at present.