So what has been happening since the earth-shattering Brexit vote back in June? Well, if you live in the UK you could be forgiven for thinking that it has been a bit of a damp squib. Life continues pretty much as before and the much predicted financial crash has not materialised.
Of course it’s not as simple as that because Article 50 has not been triggered yet, so the reality is that not much actually has changed. David Cameron has been replaced by Theresa May, but the country is still run by a Conservative majority, so there have been no precipitous legislative changes. In fact, the decisive speed of the transition from one PM to the next is partly responsible for the apparent stability.
Sterling has suffered on the currency exchanges, but on the whole this has been a force for the good in the UK. Exports have risen on the back of this and more disposable income has been spent at home as the costs of holidaying abroad have increased significantly.
But is this the calm before the storm? Well it is surely true to say that the real impact is yet to be seen. It feels a little like the world is holding its breath waiting to see what the UK is going to do in its exit negotiations with the EU. Some commentators are saying that it will be EU light, with the UK remaining in the single market, whilst others are saying that under no circumstances can the UK remain in the single market, principally due to the free movement of labour. Hence, no-one really knows.
Probably of most direct relevance to my role is the impact this is going to have on the VAT system in the UK. Will we adopt a system very similar to the existing EU model or will we throw that out and start again with a new tax? What is for sure is that there will be a consumption tax of some sort because it is such a significant contributor to the government’s budget. There is huge scope for change for the better here, not least the ability to combat cross border VAT fraud through which perhaps as much as £6.5 billion is lost per year at the moment (and that is just within the UK). My view is that the system will go forward largely unchanged, but free from the shackles of EU oversight.
In the context of Brexit, VAT also seems to be the tax that is of most interest to our clients. I recently faced a question from a UK based manufacturing client with operations in a number of other EU countries. They were interested to understand, from a VAT perspective, how easy it might be to sub-contract manufacturing to another site in the EU should negotiations on Brexit turn sour. This indicates that there is a very real and immediate risk of business being transferred overseas.
To end on a positive note and with perhaps a touch of Dan Brown type theory, my prevailing view is that the UK will ride this storm with relatively little impact. The UK is one of the largest and strongest economies in the world and is still a very attractive place to do business with access to a skilled labour resource, mature infrastructure, a relatively benign legal system and a stable political environment (Brexit aside!). Hence, inward investment will continue for the foreseeable future.
On top of this, I wonder whether there are perhaps too many ultra-wealthy and influential people with significant investment tied up in this country to allow the UK economy to go down!
For further information or advice please contact Brian Jukes.