Independence won’t really change Scots trading, says Chris Smith
On 18 September Scotland will vote for or against independence. Many businesses are asking about the legal implications, particularly where the company is incorporated in Scotland but trades throughout the UK, and is involved in overseas trade.
Scotland is already a separate jurisdiction from other parts of the UK for the purposes of company registration: a Scottish-registered company must have its registered office in Scotland and is subject to the jurisdiction of the Scottish courts. Otherwise, the part of the UK in which a company is registered has little practical significance. All UK companies can trade anywhere in the UK (or, indeed, the world) and there are no restrictions based on nationality regarding who can own and control them. That’s unlikely to change.
What would change if Scotland became independent? The question of European Union membership is important, because many trading and employment rules affecting businesses stem from Europe. The opposing sides of the independence debate take different positions on whether an independent Scotland would automatically continue in EU membership or would have to re-apply, but it’s hard to imagine Scotland would not be part of Europe one way or another, in which case Scottish businesses would continue to be subject to EU rules. Complicating this question is the UK referendum on Europe proposed by the current UK government. One possible scenario is an independent Scotland in Europe but the rest of the UK out of the EU. This question is crucial for Scottish businesses: the rest of the UK is Scotland’s biggest export market by far.
So what would change? Tax seems one of the certainties. An independent Scotland would set its own corporate, sales and employment taxes. Companies trading throughout the UK will likely need to deal with separate tax regimes, possibly with differing tax rates depending on where in the UK trading occurs, leading to additional administrative burdens, although the same situation faces companies trading across more than one EU country. It’s also worth noting that further devolution of powers to Scotland might happen after a No vote, including corporate taxes, so varying corporate tax rates across the UK might be on the horizon regardless.
Currency is another big question. The Scottish Government proposes that an independent Scotland would be part of a sterling union with the rest of the UK, in which case companies would continue to enjoy the convenience and certainty of trading in a single currency. However, Westminster is dismissive of this proposal, so it’s possible that an independent Scotland would join the euro, in which case Scottish businesses would enjoy that convenience and certainty in trading across the eurozone, but would have to deal with exchange rate risk and currency exchange costs in dealing with England, Wales and Northern Ireland. Tied to this question is interest rates: would businesses in an independent Scotland be paying interest rates set by the Bank of England, the European Central Bank or even by a new Scottish central bank? The answer, and any significant variations in rates, could influence where in the UK a company would want to headquarter itself in the event of Scottish independence.
For companies involved in overseas trade, the consequences of independence are likely to depend more on where in the UK they are currently exporting goods from rather than where they are registered. An independent Scotland would have its own customs authority with its own import/export forms, procedures and tariffs, possibly meaning an additional admin burden for companies doing overseas trade from across the UK.
Softer issues are also relevant. The fact of a company’s registration in Scotland might affect its perception by proposed business partners. This might be a good thing if the business is selling products in which Scotland has an international reputation or a bad thing if Scotland is seen to be a remote, small market.
In summary, Scottish companies would carry on trading across the UK and elsewhere after independence. A big unknown is whether they’d be using a different currency from the rest of the UK. It’s fairly certain they’d be subject to different rates of corporation and employment taxes and business rates. As to whether the overall trading environment would be better or worse for business after independence, for that you’d have to ask a politician.
•Chris Smith is a partner in the corporate department at Gillespie Macandrew LLP: www.gillespiemacandrew.co.uk