The statement over the weekend by the International Trade Secretary, Dr Liam Fox, that there was a 60% chance of a “no deal” Brexit was meant undoubtedly to put some pressure on the EU to respond positively to the Government’s white paper, however it also reflects the political dynamics since the Chequers agreement on the 6th July.
The Chequers agreement with a common rulebook for goods is probably as far as Theresa May can go in terms of compromises. This compromise has already provoked the resignation of nine Ministers, a further bout of resignations which would undoubtedly follow further concessions is something her premiership could probably not survive.
Since the Chequers meeting, the rhetoric on “no deal” has been ratcheted up, partly because the new Brexit Secretary’s new role is to prepare for that potential outcome. Secondly, the Government has approximately 300 projects dealing with Brexit which seek to deal with the consequences of “no deal” but has not sought to publicise them because it was felt that this would be provocative, however since the Chequers agreement, this dynamic has changed. The PM is also likely to come under further Eurosceptic pressure at the Conservative Party Conference where the vast majority of members view the deal as a concession too far.
Up until now, it was always felt that even if it was at the very last minute, an agreement covering the transition would be concluded and importantly for tax, would mean that the major changes would be deferred until at least the end of the transition period in 2021.
This assumption look ever more questionable and the chances of a complete break in March 2019 look more likely than ever. This would have significant affects on our customs duties, potentially VAT processes for both charging and reclaiming VAT, payments of dividends without withholding, non-discrimination agreements and social security agreements. It would also potentially affect the ability of UK companies to claim for losses incurred in other EU States as well as investment reliefs such as furnished holiday lets and potentially the creative tax reliefs.
Whilst there is no need for anyone to panic, companies and their advisors should become aware of the scope of European Tax law and its affects on UK tax legislation and practice. As they say, forewarned is forearmed.
Jeremy Mindell will be doing a number of talks on Brexit, the European Union and UK Tax Law in Autumn 2018.