On 1 January 2021, Import VAT in the UK underwent two significant changes: Purchases from the EU now attract Import VAT (and Duty) and are no…
Over the last couple of weeks I have seen a noticeable increase in the number of clients seeking assistance with their Brexit planning.
Consequences of a no deal
With the apparent increased prospect of a no deal Brexit, coupled with the recent publications by the government of the consequences of a no deal, business owners must consider the potential impact to their business and plan as best they can.
During our meetings we are often asked about the tax consequences of establishing a new subsidiary or branch in an EU state. This is not a simple answer in its own right but quite often the conversation comes back to what the business does, how it operates and whether commercially establishing presence in the EU make sense.
For me, the first step for the proprietors / directors is to undertake a comprehensive review of its existing operations. No stone should be left unturned as this review should help identify where the risks and threats lie but also, just as importantly and often overlooked by the reporting press, the opportunities.
The risks are well documented e.g. goods delayed at port, gaps in the labour market, additional costs.
But what about the potential opportunities?
Some of the world’s fastest growing economies sit outside of the EU and Brexit promotes businesses focusing their limited resources on these markets. Closer to home, with the threats to the supply chain within the EU, UK competitors will be able to offer UK customers a more reliable and time friendly supply.
The conversation invariably comes to the question of “how do we set up a subsidiary in the EU?” which is quickly followed by “which country is best”? This is a fundamental question for any business to ask and it is important to carry out an awful lot of homework before coming to a conclusion.
The ‘best country’ should not be defined by the country with the lowest tax rate or the country with the highest audit threshold.
The solution should be based on what makes sense for the business both commercially and economically.
Questions should be asked on:
- Where the largest customer base is?
- What the cost of leasing business premises is?
- What the regulatory and legal burden of that country is?
- Whether there is sufficient local labour with the required level of expertise at the right price?
There is little point in chasing the lowest tax rate if profits are going to be wiped out by high costs!
The conclusion may even be that making further investment in the UK is the best choice for the business in question.
My feeling is that some businesses are jumping to the idea that an EU subsidiary or branch is the solution for them. Imagine the depth of thought process and management time spent when reaching important business decisions such as to whether to buy a new warehouse, extend existing factory facilities or open a new shop in the existing UK marketplace.
Yet, with Brexit looming, the danger is that businesses are instinctively looking at the EU option because it seems sensible (and that may well be the case) and are committing themselves to a future course of action when other less costly and more profitable options may be available.