Following the leave victory on Friday 24 June and David Cameron’s decision to resign, it is anticipated that over the next 3-4 months the UK Government will experience a turbulent time. I’m certain that over this period we will see politicians gain short term control over the chaotic situation with no long term plan in place.
One of the biggest question marks for business owners hangs over “Making Tax Digital” – the government’s commitment to reducing burdens for tax payers and building a transparent and accessible tax system for the digital age. This was eagerly anticipated if the Remain vote won but with so much else to deal with, it’s predicted that this will be put on the back burner.
It is rumoured that George Osbourne will likely leave due to the resignation of David Cameron. With a new chancellor, we could possibly expect a new vision and an emergency budget. However early indications suggest that this will not happen so soon after the referendum.
During the campaign, the chancellor took the decision to publish an “illustrative budget scorecard” of tax rises and spending cuts; in particular £15bn of tax rises and £15bn of spending cuts. If the emergency budget does follow this path, it will crack the triple tax lock with rises in income and national insurance. To keep companies in the UK who are tempted to leave, the rate of corporation tax should not be increased.
Looking to the overall medium term, the changes that we might see in the UK tax system depend on the formal date of the exit from the EU, which could be 2 years away.
The “divorce” from the EU will likely take place and begin in late 2016 and will continue until 2018; unless they activate Article 50.
In the short to medium term, tax regulations tied to EU law such as VAT won’t change. Domestic fuel was a hot topic with changes promised by the leave campaign; again these are unlikely to happen. Ultimately however, in the long term VAT could increase as it is easier to implement its change.
An initial casualty may be the change in VAT rate on the installation of solar panels and other energy saving elements. The CJEU ruling required that the UK increase the VAT rate from 5% to 20% on such supplies, but again this change may not happen due to its non-inclusion in the Finance Bill.
Finally once the UK achieves the exit from the EU, the government will no longer seek EU approval in respect of state aid on tax incentives such as R&D tax credits, but we may well see more tax incentives introduced to encourage investment in the UK.
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