EVENTS

S&W Sessions: Brexit

  • Date: 13 Mar 2019
  • Time: 09:30 - 10:30
  • Venue: Webinar, hosted via WebEx, join from any location, use the link below

S&W Sessions are a regular series of thought provoking hot topic webinars that are relevant to your business.

The UK is due to leave the EU on 29 March 2019 with the European Union (Withdrawal) Act 2018, but is yet to reach an agreement with respect to what the relationship with the EU will be after the exit. It is expected that there will be a transition period from 30 March 2019 – 31 December 2020.

We are working with a number of clients on their Brexit planning arrangements. Join this webinar to gain an insight into the typical tax issues that we have been advising on and what businesses need to considering going forward.

The webinar will touch upon the following:

  • Tax structuring to enable businesses to continue operating post-Brexit, even under a “no deal” scenario
  • Moving existing operations out of the UK
  • The tax implications if EU tax Directives are no longer applicable
  • How VAT for goods and services into and out of the UK will be impacted by Brexit
  • Whether “Transfer of a Going Concern” provisions apply to transfers of trade and assets
  • How will the final deal (including no deal) impact an employer’s payroll in April 2019?
  • What needs to be done when people move to or from the UK?

Who should view the webinar?

  • Business with EU customers and operations.

Overview

New tax legislation?

  • At present, the UK implements and operates relevant EU tax law and Directives in its tax legislation 
  • We are not currently expecting any changes to UK tax legislation
  • The Chancellor of the Exchequer's Spring Statement takes place today at 12:30pm

What could Brexit mean for the UK tax environment?

  • EU Directives may not need to be followed
  • ECJ decisions may no longer impact
  • State aid rules may no longer be applicable
  • The UK may need to become a more attractive place to do business
  • But the above would depend on the type of Brexit deal negotiated and relationship with the EU going forward

Corporation tax

To restructure operations or not?

  • Typical reasons for restructuring include:
    • Regulatory reasons: particularly passporting rights for financial services business
    • Potential tariffs and duties mean that the current supply chain is no longer effective
    • Economic climate and Brexit uncertainty affecting business
    • Loss of withholding tax related EU Directives:
      • Parent Subsidiary Directive
      • Interest and Royalties Directive

Typical restructuring corporate tax issues

  • The transfer of business activities and assets out of the UK is generally seen as a disposal for UK tax purposes and potentially subject to corporation tax at 19% - unless exemptions apply
  • Note there are different rules for intangibeles:
    • 'Old' or 'new' intangibles
  • Do UK restructuring provisions apply?
  • Do EU cross border demerger provisions apply?

 Withholding tax

  • What payments of dividends, interest and royalties are being made and received?
  • Is a domestic withholding tax exemption available
  • Is double tax treaty relief available? What formalities must be followed?
  • For payments received from third parties, are you protected by a gross up clause in the legal contract?
  • Is group restructuring necessary?

Tax residency / permanent establishments

  • New corporate structures must have sufficient substance; holding companies cannot be merely shell/pass through companies
  • Ensure central management and control takes place in the correct location
  • Permanent establishment issues
  • Beneficial ownership of dividend, interest and royalty payments

Impact of a "no deal" on VAT

  • Impacts to your business will alter depending on whether you are engaged in goods or services
  • Based on HMRC statutory instruments and guidance notes, there will be a number of changes to the rules that business need to be ready for in the event of a "no deal" Brexit.

VAT rule changes for import of goods

  • The current VAT rules applying to imports from outside the EU will be followed for imports from EU countries.
  • We expect postponed VAT accounting will be implemented for both EU and non-EU imports. Customs declarations and other duties will still be required on entry. This represents a considerable cash flow saving
  • Parcels from overseas businesses, VAT will be collected from the UK recipient (in line with current non-EU parcels practice) for items valued over £135. Otherwise, the overseas business will account for the VAT due using an online accounting service.

VAT rules changes for services to and from EU consumers

  • The general place of supply rules will remain unchanged
  • No EC Sales Lists will be required for sales to EU business customers
  • The input VAT deduction rules for specified financial services provided to EU based customers may be changed, further guidance will be released on this
  • HMRC will maintain the Tour Operators Margin Scheme for UK supplies but the zero rate will apply to the margin on sales with a destination outside of the UK

Saying goodbye to EU VAT tech solutions

  • UK businesses will no longer be able to use the EU VAT Refund Scheme in EU Member States, the non-EU VAT Refund Scheme should be used
  • UK VAT registration numbers can no longer be verified on VIES. HMRC will establish a new system for checking the validity UK VAT registration numbers
  • Mini One Stop Shop (MOSS)
    • The UK MOSS system will no longer be available
    • Any UK business making supplies of digital services in the EU will need to register for the non-Union MOSS scheme in an EU Member State after the UK has left the EU
    • Any non-UK businesses will need to register for UK VAT with respect to B2C supplies of digital services

Examples of practical issues due to rule changes

  • Can "triangulation" still apply?
  • Will I need to register for VAT in each EU state that I make sales?
  • Will it matter where my goods are located at the time of Brexit?
  • How long will it take to recover input VAT in each EU member state?
  • Who will "own" the goods when they cross the border?

Brexit impact on customs duties

No Deal Deal No Brexit
WTO rules apply Free Trade Agreement rules apply EU rules apply
Effective 29 March 2019 Effective after transitional agreement UK customers duties are EU customs
UK customs duty rates may be similar to current EU import customs duty rates or increase UK customs duty rates may be similar to current EU import customs duty rates or increase No customs duties will apply on UK - EU movements
Customs duties will apply on EU imports No customs duties apply to EU originating imports Non specific actions
No customs duty preferences for EU After transitional agreement, no customs duty preferences for EU  
Consider impact on pricing and demand for commercial strategy Review EU origin and trade arrangements between EU and UK  

 Custom Duty considerations

  • Apply for Economic Operator Registration and Identification (EORI) number if you do not currently trade with countries outside of the EU
  • Customers warehousing
  • Duty deferment accounts
  • Transitional simplified procedures - As mitigation for a no deal Brexit, this transitional arrangement for customs freight will be introduced. Businesses registered for TSP are able to transport goods from the EU into the UK without having to make a full customs declaration at the border, and will be able to postpone paying any import duties. Businesses can register for TSP from 7 February 2019, if they:
    • have an EORI number
    • are established in the UK
    • are importing goods from the EU into the UK

Practical payroll implications for expats in April 2019

Deal:

  • Income tax withholding unlikely to be changed
  • NIC withholding unlikely to change in short term for existing or new expats
  • Other payroll agreements (e.g. ‘section 690’ agreement, Appendix 5) unaffected

No Deal:

  • Income tax withholding unlikely to be changed
  • NIC withholding to change with immediate effect for EU expats
  • Other payroll agreements (e.g. ‘section 690’ agreement, Appendix 5) unaffected

Secondees coming to / going from UK

  • Right to work in UK depends on existence of a deal. Similar issues may arise for UK individuals going overseas
  • Individual income tax position unlikely to be impacted by Brexit
  • Any double tax scenario is governed by Double Tax Agreements – which are not EU dependent
  • Social security more complex – current EU agreements in place are grandfathered in certain situations
  • Otherwise, need to revisit old ‘totalisation agreements’
  • Other considerations e.g.:
    • EU cross border regulations on pensions
    • Remuneration regulations 

STBVs coming to / going from UK

  • Individual income tax position unlikely to be impacted by Brexit
  • Double Tax Agreements prescribe conditions for UK / overseas tax charge
  • Social security more complex – current EU agreements in place are grandfathered in certain situations
  • Otherwise, need to revisit old ‘totalisation agreements’
  • Less co-operation between tax authorities?
    • E.g. application of similar principles such as ‘economic employer’

Pensions

  • Tax relief on pension contributions and distributions are a domestic issue
  • Double Tax Agreements sometimes prescribe for tax position where cross-border employees are concerned
  • As noted previously, DTAs are not Brexit related
  • But…some specific issues are closely correlated to the EU:
    • QROPS e.g. Transfer Tax rules & conditions
    • QNUPS
    • EU Cross border pension scheme rules e.g. DB schemes

The wider HR angle

Beyond the payroll and tax/social security-based implications, employers will need to consider:

  • What does this mean for EU driven labour law e.g. TUPE regs
  • What immigration changes will exist
  • Will tax and general HR policies be fit for purpose?
  • How will you deal with potential skills shortages?
  • Could there be increased wage demands if costs of goods increases?
  • How would changes in data security laws affect payroll data?

 

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