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Inward Investment VAT

Whilst Brexit negotiations have been keeping those on both sides of the English Channel on the edge of their seats, some recent, very positive developments have led to a boost in business confidence in the UK.

A sensible transition period to 2021 is looking fairly certain now. This breathing space will ease the pressure, permit more time and thought to be applied to future arrangements and help foster a good working relationship with the EU. We are not yet there and the insistence on a special “bespoke” trading arrangement for the UK will slow matters, but the tide seems to have turned.

French President Macron’s initiative for a tiered Europe with a space for those less-Europhile nations could provide a useful platform to ease the UK’s future trading status with the EU bloc.  In addition, there are strong indications that the UK is considering remaining in a variety of EU programmes on technical, scientific and other areas and is prepared to pay for that, all of which bodes well for the future.

VAT and customs duties are an integral (and often intricate) part of trade and investment as they directly impact margins and affect all decisions whether it be where to trade, invest, or employ personnel and how to go to market. The UK is blessed with a very positive and proactive VAT regime and HMRC, our tax authority, is comparatively benign compared with many around Europe.

Inward investment into the UK, if correctly managed, will generally permit VAT recovery on costs, even before sales are generated, easing 20% of start-up investment. An advanced VAT regime befitting a leading trading nation is already adapted to most industries and effectively manages complex new industries in the digital arena, along with finance, pharmaceuticals, manufacturing, international trade, biotech, green energy etc.

To address the challenge of Brexit, the government looks likely to continue to ensure an attractive VAT climate, generous VAT reclaim rules and the continuation of a regime that will largely mirror EU VAT rules to facilitate frictionless trade. The likelihood of a hard Brexit and the potential imposition of high WTO customs duty tariffs on trade with the EU is rapidly diminishing and advanced customs clearance procedures for trade with Ireland and our continental neighbours are receiving more attention.

The additional two year breathing space along with a more considered, softer Brexit position adopted by the ruling Conservative government (as well as the Labour opposition) both point to a promising future trade relationship with Europe. The UK will look outward and seek more free-trade agreements with the wider world, but will remain closely tied to the EU. Many overseas investors are looking to capitalise on the pound’s current weakness to leverage value and take advantage of Britain’s modern, pro-business environment.

If you would like to discuss any VAT issues, we would welcome you to connect with Richard Collier or your usual contact at Mercer & Hole.

 

 

Date: 12th October, 2017
Author: Richard Collier

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