The transition period for the UK leaving the EU will come to an end on 31 December 2020. Although there are still many details to be decided upon, it is essential for international businesses and individuals to adapt and prepare for the changes ahead.
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When the UK completes its exit from the EU, and in an attempt to boost the economy, the government has today announced…
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There is a new immigration system from 1 January 2021. Free movement will end, and the UK will introduce a points-based immigration system…
Brexit: Top Tips to consider as the UK completes its exit from the EU
With effect from 1 January 2021, the UK will complete its exit from the EU and the rules for trading with other countries will change.
Withholding Tax and the EU
Many countries in the EU impose withholding tax on cross border payments of dividends, royalties, and interest.
A guide to managing a remote workforce overseas
“The COVID-19 pandemic has challenged all of us to think, live, and work in new ways.
Brexit: cross border restructuring and insolvency update
However, during a transition period ending on 31 December 2020, EU law has, subject to certain limited exceptions, continued to apply to the UK as it did before Exit Day.
Settled status application? Did you consider your tax position?
With the approaching end of the Brexit transition period, many people are now applying for settled status in the UK to ensure they have permission to live in the UK and travel freely.
Brexit update: Importer and exporter changes
Regardless of whether the UK manages to secure a deal with the EU, after the end of the transition period on 31 December 2020, importers and exporters will have to make changes to their current VAT and Customs processes.
Transitional period trading with the EU: As it comes to an end – what do you need to know?
HMRC has issued new guidance which gives importers and exporters a step by step action plan for imports after 1 Jan 2021.
Frequently asked questions
- Do I need an EORI number?
Yes, HMRC are automatically issuing GB EORI numbers to all VAT registered import/export businesses. If you haven’t received it, you should apply online at Gov.UK. Businesses will also need an EU EORI number if importing into the EU. These are available from the local territory. Mercer & Hole are founder members of The International Accountancy Group (TIAG), through which we can access a global network of likeminded firms and can assist and advise you on regulations in different territories.
- Do I need to set up a subsidiary in the EU? Will EU businesses refuse to do business with a UK company?
This will depend upon several factors, including where you are established, your supply chain and the Incoterms for your goods. Businesses should seek professional advice as every firm will have unique circumstances. Here at Mercer & Hole, we have the international connections and experience, and we are happy to assist you to determine what is best for your company.
- Do I need to register for VAT in an EU country? If so, will I need to appoint a fiscal representative?
Whether you need to register in other countries will depend upon your current supply chain and Incoterms for the supply of the goods. Where an EU VAT registration is needed, most EU countries will require you to appoint a fiscal representative (local agent) who will become responsible for payment of VAT and, as such, will need a bank guarantee or deposit. Simplifications such as Triangulation, will no longer be available and may require you to register in another EU country. Again, our overseas colleagues will be able to advise you.
- Will cross border services be impacted?
The rules for B2B cross border services are unlikely to change, and the reverse charge should continue to apply. B2C services supplied under EU MOSS (digital services) and financial services will be impacted and advice should be sought.
- Will I need to continue to submit EC sales lists/Intrastats?
EC sales lists will no longer be required. Intrastat declarations will be needed for arrivals only.
- Do I still need to quote my EU customers’ VAT numbers on sales invoices?
Sales of goods to EU countries will become zero-rated exports (provided the conditions in HMRC Notice 703 are met). It will no longer be necessary to obtain and quote EU VAT numbers for sales of goods. The current distance selling rules will change and this will impact both direct sellers and sales via online marketplaces (“OMPs”). OMPs will become responsible for the payment of VAT in certain instances.
- How will tax be affected by Brexit?
Certain UK taxes will be immediately impacted by Brexit from 1 January 2021, with the potential major shifts in relation to indirect taxes – such as VAT – which are currently aligned under EU policy (see the other Frequently Asked Questions on VAT.)
The UK already has control of its own direct taxes including income tax, capital gains tax (see below), inheritance tax and corporation tax. This will mean no instant change in policy from the very start of 2021, with the next potential revisions announced in the forthcoming Budget, scheduled for Spring 2021.
If you have applied for Settled Status to ensure you have permission to live in the UK you may wish to consider your tax position. The UK is likely to continue to retain certain existing EU tax directives, for example, HMRC have already announced that the EU “DAC6” cross-border tax reporting will still be implemented after Brexit.
- Will the UK become a tax haven after Brexit?
A hefty reduction to UK tax rates after Brexit may appear to be a simple method to entice investment to the UK. Unlike VAT, the UK already has the ability to set direct tax rates but a post- Brexit UK may be unshackled from the scope of EU legal action into the use of low tax rates as a form of “state aid”. Whether the UK could feasibly become a tax haven may be blocked if a deal with the EU contains provisions preventing the UK from aggressively undercutting the EU on taxation after Brexit and may be unattractive due to the perceived risk of retaliatory measures from the EU. In any event, the financial burden of the COVID-19 pandemic may mean that the Chancellor has little scope to reduce taxes.
The UK corporation tax rate is already globally competitive, and earlier this year a proposed reduction in the rate from 19% to 17% was withdrawn, which provides an insight that the UK has little appetite to lower the tax rate further for companies and is unlikely to seek to become a tax haven. There are plans for sea, air, and rail ports to bid for ‘Freeport’ status to allow customs tax relief, which some view as effective mini tax havens.
- How will Capital Gains Tax be affected by Brexit?
Whilst nothing is confirmed at this stage, it is widely speculated that there may be an increase in UK Capital Gains Tax (CGT) rates in 2021. The existing CGT rates are 20% for higher rate taxpayers or 28% on sales of residential property – far lower than the top rate of income tax at 45%.
There is a spring Budget planned for early next year when increases to CGT rates may be announced, which would either commence from 6 April 2021 or may even be introduced with immediate effect.
- What is the effect on cross-border workers?
It is too early to say with certainty, but the most likely implications for cross-border workers are around social security/national insurance contributions. At present, there is an overarching reciprocal agreement on NIC, which means that contributions in one country are recognised in the other EU states meaning there is no need to pay double contributions (similar in operation to double taxation treaties). We wait to see if old bi-lateral agreements will revive or if new separate treaties will emerge. For now, cross-border workers will need to be aware of their particular arrangements to assess if, and how they will be affected.
- Will Brexit affect my pension?
UK registered pensions operate under rules created in the UK. As such, we are not expecting Brexit to have any direct impact, in terms of changes to the rules surrounding them. However, whether the scheme is a defined benefit or defined contribution arrangement will have a potential impact.
With defined benefit schemes, such as those referred to as ‘final salary’ or ’career average revalued earnings’ schemes, there is a promise of a certain level of benefit. The responsibility to provide this benefit lies with the scheme and usually a sponsoring employer.
Defined contributions schemes – such as most personal pensions – are effectively tax-efficient savings plans. With these arrangements the ultimate benefit depends upon how much is contributed and the performance of the underlying investments. As such, stock market volatility caused by post-Brexit uncertainties could have an impact of the value of these funds. Whether that is a positive or negative impact will very much depend on the types of investment funds and where they are investing.
- Will Brexit affect my private pension?
A private pension is highly likely to be a defined contribution arrangement, as outlined above. The risks that Brexit exposes it to are, therefore, the same as outlined.
Given the huge range of investment funds and strategies in the market, it not possible to give the same, concise answer of the potential impact of Brexit for everyone. If you do have concerns about your own retirement plans and what Brexit could mean for them, please speak to Michael Lapham, Director of Financial Planning.
- What is the treatment for sales of goods in Ireland?
As a result of the Northern Ireland Protocol, Northern Ireland (NI) will have a special dual status post Brexit to avoid a hard border. NI will remain part of the UK VAT system however, movements of goods from NI to GB and vice versa will be imports and exports with the promise of special Customs procedures to simplify matters. Movements of goods between NI and the rest of Ireland/rest of the EU will be between EU supplies. The position is complex and if this affects your business, advice should be taken.
- We are here to help
We will also continue to address the issues that arise and will publish frequently asked questions (FAQs) on these pages. Please do not hesitate to contact us if you have any further enquiries; we are here to help you.
Should my business set up an entity in the EU?
Many businesses are considering setting up a legal entity in the EU to prepare for when the UK completes its exit. If you trade in Europe, you may be considering setting up an entity within the EU.
Factors to consider
- Ease of setting up a legal entity, this varies from country to country
- Ease of reporting, again this will vary
- Tax system and tax rates and its integration with the UK’s impacts of double tax treaties
- Legal requirements – do you need a local director?
- Location of customers and supply chain
- Language and culture
- Locality employment needs
- The local VAT and duty rules and regulations
- Time difference in locality and will this interfere with regular communication?
- If or how the pandemic has impacted your business plan?
- The rules of European Companies in each country of consideration
We have put together a guide as an example of some of the countries commonly used by UK businesses. Please download the useful table here.
How do I set up an entity within the EU?
Through Mercer & Hole’s membership in TIAG and TAG Alliances, our team can offer clients comprehensive and multidisciplinary solutions to address the various challenges presented by Brexit. Mercer & Hole have close relationships with independent member firms in Ireland, The Netherlands, Malta, Cyprus, and 100 other countries around the world.
Mercer & Hole is a member of TIAG® (The International Accounting Group), a global alliance of independent accounting firms offering a full range of accounting services to clients all over the world, and a division of TAG Alliances®. TIAG members are carefully selected for membership based on professional competence, commitment to client service, reputation within the business community, and recommendations from existing members. TIAG members are highly respected, value-driven accounting firms with local market knowledge and expertise.