On 23 June 2016 the UK electorate voted to leave the EU by referendum by a narrow 1.9% majority. This was a momentous decision for the UK and the impact on our economy is likely to be significant over the coming years. Right or wrong, it is not my place to say, we are where we are and it is expected that the government will stand by the outcome and commence the formal process to exit. The process itself will take some time. Mr Cameron has announced that he is resigning as Prime Minister and will not trigger Article 50 to officially start the process, leaving this to his successor who will likely be in post before the Conservative Party conference in October. Once the formal process has started, there is a two year period during which the exit terms are to be negotiated, although if agreement is reached earlier by all member states then the exit date may happen sooner. There is a lot to negotiate therefore a shorter exit period would seem unlikely at this point.

What are likely to be the short to medium term tax implications of the exit? The general uncertainty which surrounds the exit applies to tax also, however there are certain areas where the potential implications are somewhat easier to anticipate, albeit subject to the impact of any exit deal negotiations. My thoughts at this stage are as follows:

An emergency budget?

Many commentators have suggested that there may be an emergency budget to help calm the markets and create some stability. However I believe this is unlikely due mainly to Mr Cameron’s resignation which will now be followed by a swift leadership contest within the Conservative Party. Mr Cameron has indicated by his resignation that he does not wish to be the leader making the decisions concerning the country’s future as it prepares to exit. Therefore it would seem unlikely that he would require his Chancellor to deliver a Budget which may well not get enacted by the new Cabinet. George Osborne appeared to also rule this out in his statement on 27 June.

I would anticipate that the Autumn Statement, usually at the end of November, may be held earlier following the appointment of the new Prime Minister and inevitable Cabinet reshuffle. It is likely that this may bring more significant measures than is usual. It is, of course possible, that there will be a General Election before this, and Labour seem to be expecting that.

The Finance Bill 2016

The Finance Bill 2016, which includes the legislation to enact the measures announced in the last Autumn Statement and Spring Budget, has yet to be passed. The referendum campaigns had already delayed the usual timetable of June or July for this process significantly so that enactment is now not expected until October. The resulting rush to get this through parliament following the summer recess and the instability within the parties on both sides of the bench creates uncertainty as to whether the Bill will be passed in its current draft form, or at all. If this happens then much of the tax changes expected to be currently in force from 6 April 2016 may not apply which certainly makes my day job as a tax adviser more difficult as what most of my clients seek from me is certainty over their tax position.

Indirect taxes

The most obvious taxes to be impacted are the indirect taxes, customs duties and VAT. Customs duties only apply to cross border sales and imports and although VAT applies to both domestic and cross border transactions it is seen as the EU tax as it was imposed when we joined the EU and is operated almost entirely by EU directives.

It is almost certain that from a practical perspective trading with the EU member states will require a greater level of admin and incur longer delays as goods will need to be fully cleared through customs.

Customs Duties

No duties are imposed on the movement of goods within the EU, therefore upon leaving the EU there are two immediate implications. Firstly EU member states may apply the duty tariff to goods sourced from the UK. Secondly, the UK may choose to apply duty to goods imported from the EU member states. It is possible of course that tariff free access, or favourable rates may be negotiated as part of the exit deal but if not then the duty position may affect the UK’s trade competitiveness within Europe. According to official figures from the Office of National Statistics, 44% of the UK’s exports were to the EU last year.

A further, potentially positive outcome is that the UK is unlikely to be bound by the EU tariff rates for imports from non EU member states. It will therefore be possible to set our own duty rates to favour our own productivity and protect certain industries, such as the steel industry and farming.

It is certainly likely that businesses and consumers will see some significant changes in the prices of many goods.


It is very unlikely that we will see VAT abolished or altered significantly as it is the third largest source of tax revenue for the government. However upon exit we may have greater freedom to make changes to the regime, including the rates applicable and what goods and transactions they are imposed upon. A well-known issue which may be resolved is the so called ‘tampon tax’ caused by the UK’s special derogation in respect of our zero rated goods which cannot be extended to any new items. Shaving products are therefore zero rated, whilst sanitary products are subject to VAT.

At present sales of goods to and from EU member states are treated as dispatches and acquisitions, these will now be exports and imports. This will have an impact on cash-flow for businesses which trade with EU member states. For those significantly impacted this may potentially be mitigated with a deferment arrangement with HM Revenue & Customs and it is hoped that these arrangements would be made available more readily to businesses.

Corporate taxes

There are significant EU influences on the UK corporate tax system as a result of the Single Market. The Parent Subsidiary Directive and the Interest and Royalties Directives enable profits (dividends, royalties and interest) to flow between related corporate vehicles free from withholding tax, encouraging growth and investment between the member states. Without this benefit, we will revert to relying upon the Double Tax Conventions between the UK and each individual member state, many of which provide for reduced rates but very few apply no withholding at all. Large groups will certainly be reviewing the structure of their operations across Europe as the detailed negotiations pan out.

Much corporate international tax policy, including the current draft EU Anti-Tax Avoidance Directive, is now being set by the OECD’s Base Erosion and Profit Shifting (BEPS) agenda. As the UK has been a driving force in this process as a member of the G20 and has already enacted a number of implementation measures, it is very unlikely that our path will differ significantly from that of the EU in this area.

Potentially on the positive side is the impact upon many of our company tax incentives which are currently limited under State Aid. An example is Research and Development Tax Relief where the rates of relief available to SME’s must be approved by the European Commission, and then the relief is restricted further if the company gains any further State Aid grant income. There are also restrictions on equity investment incentives, for example the 250 employee cap on the very popular Enterprise Management Incentive share option scheme is EU imposed therefore we may see this now extended to large businesses.


The direct impact upon individuals from a tax perspective is likely to be less significant than to businesses. However Individuals who own properties in other EU states could find that they are no longer protected from the punitive tax and social charges that are imposed by some EU countries on non-EU nationals.

Protection from double taxation comes from the Double Tax Conventions between the UK and each EU member state so this will see relatively little impact, albeit there may be some rate increases in cases.

From an employee mobility perspective there is a possibility that the current arrangements whereby social security contributions are only paid in one member state may disappear. The UK of course could still apply this for outbound employees but if other states do not extend the same relief to the UK then this could make it very costly for businesses within EU member states to send employees to the UK, unless the UK gave up its inbound taxing rights also which would be unlikely.


We are heading into a period of unprecedented uncertainty for the UK and uncertainty is never good news for business. The future of some significant areas of the UK tax regime depends significantly upon the outcome of the negotiations with the EU as to the exit package deal. Therefore only time will tell as to the full impact of the referendum outcome. In the short term though we are likely to see measures in the next Autumn Statement and Spring Budget to create stability, protect our economy and avoid a recession.


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