Peter Courtney, international tax specialist at Johnston Carmichael, looks ahead to the possible tax changes that will affect Scottish businesses operating internationally in a post-Brexit landscape.
In 2017, I recall reading a study by Professor Roland Alter of Heilbronn University that predicted Britain extracting itself from the EU will be “incomparably more complex” than the first moon landing.
Two years later and Professor Alter’s prediction seems on the money.
With less than 50 days left until Brexit with little certainty on what is going to happen at 11pm on March 29 2019, what should businesses be doing?
The key impacts of a no-deal Brexit on UK-EU trade will be:
o Imports and export declarations will be required to support all trade in goods with EU countries.
o VAT and Customs duty will be payable (where applicable) on imports into the UK.
o The loss of existing EU trade deals will mean that all UK trade with third countries will be on non-preferential, World Trade Organisation (WTO) terms.
o Customs simplification regimes currently governed by EU law (for example, transit arrangements and processing reliefs) will be lost.
From a corporation tax perspective, groups within the EU have operated without needing to think about withholding taxes on dividends, royalties and interest.
This will all change if it’s a no-deal, with the likes of Germany imposing a 5%, 10% or 15% withholding tax on dividends under the UK/Germany tax treaty.
The key priority is to know your business supply chain: what materials or services do you currently receive via other EU countries?
What goods or services do you export to or via other EU countries? What will happen if these flows stop or there’s a significant delay? Is there any alternative that could make the impact less damaging, such as:
o Additional borrowing facility from your bank?
o Change contractual terms? Buy-in additional raw materials early and extend delivery dates? Hold additional supplies of finished goods in say the Netherlands prior to 29 March? Do you need additional warehouse storage facilities/ insurance cover?
o How are your goods transported in and out of the UK? Should you consider a variety of ports/air?
o Do you have an EORI number? You and your trading partners will need this if currently the parties only trade with other EU countries.
o What duty will apply to your imports and exports? How much will it cost you and what impact will this have on cash flow?
o Do you rely on employing staff from other EU countries? Have you talked to them about the potential impact and have any applied for Settled Status?
Despite the uncertainty surrounding Brexit, trade with foreign markets will continue in one way or another, so it will be important for all of us to be close to new legislation and regulations as this gets developed.
It’s important to seek advice to avoid any potential pitfalls and give your business the best success, no matter how the negotiations eventually pan out.