If the UK votes to leave the EU today, tax experts are advising that it could result in a shakeup to certain parts of the tax regime – although exactly how is not quite certain.
Will a Brexit vote result in a complete overhaul of tax as we know it?
While some taxation rules might be ripe for a revamp, a total overhaul is highly unlikely to happen because of Brexit alone.
"It's important to remember that a large proportion of our taxes are entirely domestic in nature, and Brexit by itself won’t change any of these," said James Hender, head of private wealth at Saffery Champness. "Some taxes are, though, EU driven, such as VAT – implementation of which is a condition of entry to the EU to ensure a level playing field – and how these are amended or erased will be key."
Lucy Brennan, partner at Saffery Champness, added: "It is far too early to say how Britain's existing commitment to international tax agreements – both in terms of corporate tax and the drive for increased transparency and effective policing – will be affected."
|Brexit Britain: What you need to know|
Hang on – what's that about VAT?
"VAT is a pan-European tax and so following a Brexit we will have the freedom to extend or restrict the range of items on which it is charged," Hender pointed out. "This could result in cheaper consumer goods if some essentials are freed from VAT."
George Bull, senior tax partner at RSM, has also earmarked VAT as one that's likely to change post-Brexit. He pointed out that, even if there were no changes to VAT law in the UK after leaving the EU, interpretations of the rules would no longer be bound by European Court of Justice decisions, which could lead to changes in how HM Revenue & Customs applies VAT.
"Businesses should look at their contracts with EU suppliers now," Bull added. "If VAT in a contract is defined solely by reference to EU law, it might be worth changing the definition so that it will continue to work as intended following a Brexit."
What else is likely to change post-Brexit?
David Brookes, tax partner at BDO, pointed out that a formal exit from the EU would also result in an exit from the EU's Customs Union.
Brookes continued: "Customs duties work both ways; it is likely that the UK will impose duties on EU imports if a comprehensive free trade arrangement with the EU cannot be maintained. Therefore, European businesses may be looking to acquire UK businesses to protect or expand their UK trade."
"As a result, EU’s customs duties could apply to imports from the UK, making it less attractive for EU companies and consumers to source goods from UK companies," said Brookes.
Hender added: "Britain outside the EU becomes a third party and our exports could suffer additional taxes on sale to continental customers. This would make our goods more expensive, however a drop in the value of sterling that George Soros warned about could prove to be an export boon as our goods become cheaper.
"The real worry is that established trading relationships will be affected by the changes to duties and exchange rates and the EU may simply start to do its shopping elsewhere."
It still doesn't sound like a leave vote will do much to my back pocket...
Perhaps not immediately. Hender remarked that capital gains tax and inheritance tax would be unlikely to change dramatically straight away if Brexit occurs.
However, Hender continued: "The chancellor is, as is well known, short on cash and we await details of the tax rises in the emergency budget which he warned the country would follow a vote to leave the EU."
Paul Ayres, private client tax partner at BDO, added: "If the chancellor calls an Emergency Budget, there is potential that some changes could impact individuals. However, I’d expect it would focus more on good news for business, with the aim of calming markets and bolstering the UK’s attractiveness as a business location."
Brennan pointed out that gift aid rules might get a slight tweak in the event of Brexit, which might affect any UK taxpayers who want to donate generously to EU-based charities. "UK taxpayers can make donations to EU charities and benefit from UK gift aid tax relief; one would assume that the Chancellor wouldn’t want to continue this harmonised approach," she explained.