The days continue to tick down until 29 March, the date Britain is scheduled to leave the European Union. Despite how damaging it could be, Prime Minister Theresa May is still refusing to rule out a no-deal Brexit. There’s been talk of the drawing up of plans to boost the economy in the event of no-deal, involving changes to tariffs and the easing of other taxes to mitigate some of the negative effects of no-deal. But what could these changes look like?
Taxes which might change under a no-deal Brexit
AAT (Association of Accounting Technicians) Tax Policy Adviser Brian Palmer said: ”I believe that it’s safe to rule out a change to corporation tax, as its already relatively low compared to other nations. Changes that could happen though could be to capital allowances, personal allowances, and income tax, as well as sweeping changes to tariffs and a short term cut in VAT.”
“It would not come as a total shock if Chancellor Hammond repeated the action taken during the financial crisis of 2008, when the standard rate of VAT was lowered to 15% from 17.5%, for a little over 12 months. So, it seems likely that after a no-deal Brexit it could be lowered again from its current level of 20% to help stimulate UK demand.”
help businesses purchase assets such as energy saving boiler equipment, zero-emission goods vehicles, or water saving equipment, by allowing their full cost to be deducted from profits before tax generated during the year of purchase. In the event of a no-deal Brexit the Chancellor could extend the scope of first year allowances by introducing new categories of expenditure and increasing the eligible value of items.
At the same time, the scope of what might qualify for treatment undercould also be widened and the amount of qualifying expenditure, which for two years from 1 January 2019 is £1,000,000, could be raised further or the time period simply extended. While for the vast majority of businesses an AIA threshold increase or extension will not have any impact it is still likely to help buoy up sentiment and stimulate a positive investment back drop.
Brian Palmer said: “To help individuals, government may decide to increase the personal tax allowance at about the rate of inflation, allowing taxpayers to keep more of the money they earn at work. This will ultimately feed into the real economy via a boost in consumer spending.“
“In the same vein, lowering the starting rate of income tax might be another option. Although, care should be taken to avoid creating even more distortion between a single wage earning household on a relatively high single income compared to a household with two lower incomes that when combined amount to the same as for the former. Which, for example, occurred with the introduction of the High Income Child Benefit Charge, where a household with a single taxable income of £60k a year will have lost its entitlement to Child Benefit, but a household benefiting from two annual taxable incomes both of £30k, will retain full entitlement.”
Changes to tariffs
There’s discussion about what the situation will be with tariffs on imports at the UK’s border. The government faces a dilemma where it would have to choose between imposing tariffs, which will raise prices for consumers, or removing tariffs, which will keep goods cheap, but could put UK producers out of business due to competition from cheap imports. There has already beento protect British farmers, even though this could increase prices for consumers. It looks like tariffs will also remain in place on cars to protect the UK car manufacturing industry. However, .
Brian Palmer said: ”If this is done the government will still have to be careful to make sure it doesn’t fall foul of World Trade Organisation (WTO) rules on which tariffs can be applied to which products. In addition, reducing tariffs alone will not make UK borders as frictionless as possible, other measures will also be needed, and while it would be a positive in the short term, cutting tariffs could prove problematic when the UK attempts to negotiate the new bilateral trade deals that will be necessary once we have left the EU.”
How long will changes take?
The government will want to move quickly to ensure that the effects from no-deal Brexit are minimised as much as possible. Luckily, VAT can be changed almost overnight, which may mean it is the first change to take effect. Changes in capital allowances could also happen immediately, although the tax savings wouldn’t be felt until the end of the tax year.
The date of Brexit could come in handy for tax changes, because 29 March is only a few days from the end of the tax year. Therefore, the government could make quick changes to tax which take effect within a few days, at the start of the new tax year for businesses on 1 April, and for individuals on 5 April. One of those taxes which would have to wait until the new tax year to take effect is raising the personal allowance.
Other measures the government could take include lowering interest rates for around six months to a year, which would help decrease the cost of borrowing, and potentially increase spending. Austerity would also probably be restricted, with the government beginning to borrow and spend on infrastructure projects, one of the best ways to boost a country’s economy.
Brain Palmer said: “As we get closer to Brexit, it remains to see how many of these measures will need to be enacted. What we can be sure of though, is that the regulatory environment could look very different.”