AAB’s tax specialists advise as Brexit deadline nears

Is your firm ready for Brexit? Tax changes are likely to arrive at the end of the transition period, so it’s best to start planning now, write Helen Brown and Alistair Duncan.

How Brexit-ready is your business?

At the time of writing, the Brexit transition period is drawing nearer to a close, ending on 31 December, 2020, and the UK government is urging companies to ensure they have taken steps to prepare for life out-with the European Union Single Market. If your business carries out work or transactions in the EU, it is worth considering some of the taxation effects Brexit could have on your business.

Movement of goods

Any movement of goods between the UK and EU will require presentation of import and export customs declarations. As well as the administrative burden, there will probably extra costs involved, especially in the likely event that import tariffs are introduced.

Tax specialists at AAB reflect on impacts Brexit could have on businesses operating in the EU

Tariff rates will be set on a non-preferential basis using the “most favoured nation” tariff schedule of the World Trade Organisation (WTO). With potential new duty costs on EU-sourced goods, consider whether it remains economically viable to source goods from EU countries or if you need to review your supply chain.

Services to countries in the EU

The UK government has indicated that there will be minimal changes to the cross-border supply of services following Brexit, though UK businesses should not think that this means that they will be unaffected next year. One of the main positive changes for UK businesses will be the introduction of a postponed import VAT regime which will avoid the cashflow cost of import VAT.

However, UK companies may be required to register for VAT in an EU member state to maintain the benefits of some EU VAT simplifications such as distance sales, call-off stock and triangulation.

In addition, as a non-EU company, a UK business may need to appoint a VAT fiscal representative in other EU jurisdictions. Currently two-thirds of EU countries require the appointment of a VAT representative, with all of the associated costs that brings.

Employees

Companies with a significant number of EU nationals in their workforce will need to ensure their employees have taken the appropriate steps to ensure they can continue living and working in the UK.

They will also need to ensure that UK workers have taken the appropriate steps to ensure they can continue living and working in the EU, as work permits and visas may be required.

Companies who recruit EU nationals will need to ensure they have a sponsor licence and to confirm whether their current systems can adequately meet the compliance obligations.

There may also be the added burden of additional National Insurance costs on wages if EU social security agreements need to be renegotiated or are no longer applicable.

Financing

Distributions made by way of a dividend to cross-border EU companies are currently done with no withholding tax (WHT) applied (if certain criteria are met), as covered by the Parent-Subsidiary Directive. Also, the EU Interest & Royalties Directive currently ensures no WHT is applied to any interest or royalties between two member states. The benefits of these directives may cease to exist, resulting in WHT being applied to dividend and interest transactions.

Companies would subsequently be required to check the domestic tax legislation of the relevant EU country to determine if WHT is applicable. If it is, a lower rate of tax can potentially be achieved if there is a Double Tax Treaty (DTT) between the relevant countries. It is possible the transaction can be taxed under domestic tax legislation and the DTT cannot reduce the tax to nil, and thus result in a new additional cost.

Group structure

Companies that have an EU presence within their group structure will be able to take advantage this by organising their operations and finances in the most beneficial way to avoid unnecessary administrative burdens, VAT and export duties and withholding taxes if they can keep EU operations within the EU.

Businesses need to use the last few days of 2020 to take steps to prepare for the future post-Brexit and avoid potential issues, taking professional advice where necessary.

Helen Brown is international tax director and Alistair Duncan is director, head of indirect tax at Anderson Anderson & Brown