The Impact of Brexit on UK Tax Policies: What Has Changed
Brexit, the United Kingdom’s decision to leave the European Union. Whether you agree with it or not, it’s had various implications across many sectors, including trade, immigration, and tax policy. As the UK has been on its journey to create its own path outside the EU, tax policies have undergone substantial changes, reflecting a new economic landscape and the government’s desire to kick-start growth while ensuring compliance and fairness.
Let’s take a look at some of the big changes that Brexit has caused amongst tax policies so you can see if they affect you.
1. A change in framework
Before Brexit, EU regulations and directives largely influenced the UK’s tax framework. The transition out of the EU has led to the UK government reassessing its tax policies to ensure they are competitive and aligned with its independent economic objectives. Key areas impacted include customs duties, value-added tax (VAT), corporate taxation, and international agreements.
2. A change in customs duties and trade tariffs
One of the fastest changes following Brexit was the re-establishment of customs controls and the introduction of tariffs on goods traded between the UK and the EU. The end of the transition period on December 31, 2020, saw the UK leave the EU customs union, necessitating a new customs framework. The UK introduced the “UK Global Tariff,” which replaced the EU’s Common External Tariff.
This new tariff structure has increased costs for businesses importing goods from the EU, leading to higher prices for consumers (which is exactly why your weekly shopping bill has gone up!). But the UK has been focused on ironing out disruptions.
The UK government has sought to mitigate these effects by implementing trade agreements with non-EU countries, which aim to lower tariffs and enhance trade relationships.
As of October 2024, many trade deals have been signed. The UK now has trade agreements with countries such as Japan, Australia, and New Zealand. These deals have provided some tariff relief, but the extent to which consumer prices have decreased remains mixed. Inflation and supply chain disruptions have continued to impact prices, so it’s unclear if prices will soon reduce.
3. Changes to VAT and cross-border trade
Brexit also significantly affected VAT rules. The UK is no longer bound by the EU VAT Directive, leading to changes in how VAT is applied to cross-border transactions. Businesses now face new challenges when selling goods and services across the EU, including differing VAT rates and regulations.
The government has implemented measures such as the “Import One Stop Shop” (IOSS) to simplify VAT compliance for e-commerce businesses selling to EU consumers. Nevertheless, the complexity of VAT regulations has increased for many companies, requiring them to invest in additional administrative resources to remain compliant.
The UK has created similar mechanisms to IOSS, like the VAT deferral scheme, to ease VAT processes, but VAT regulations between the UK and EU are still complex, especially for e-commerce businesses dealing with cross-border trade.
4. A change in corporate taxation
Corporate taxation is another area that’s seen shifts post-Brexit, with the UK government wanting to create a more competitive corporate tax environment. The UK’s corporate tax rate, which was previously set to decrease to 17% in 2020, is now under review. The government announced an increase of 25% on profits over £250,000 starting in April 2023, although smaller businesses will benefit from a lower rate.
This move aims to balance the need for increased revenue with the desire to maintain an attractive business environment. The UK is also focusing on incentivising research and development (R&D) investments, with enhanced tax relief schemes designed to encourage innovation and attract businesses, particularly in technology and green industries.
5. Changes in international tax agreements
Brexit has allowed the UK to negotiate its own international tax agreements. The government wants to negotiate bilateral tax treaties that reflect its new status outside the EU. These treaties prevent double taxation and ensure tax compliance in a globalised economy.
One significant area of focus has been the UK’s participation in the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, which aims to combat tax avoidance. The UK has committed to implementing the BEPS measures, indicating a strong position against aggressive tax planning by multinational corporations.
6. Changes in tax administration
The administration of tax policies has also evolved since Brexit. Creating new customs and VAT systems requires businesses to adapt their operations and technology to meet compliance requirements. HMRC has been tasked with overseeing these changes, which has led to an increased emphasis on digitalisation and efficiency in tax reporting and collection.
There has been a focus on ensuring that businesses understand their tax obligations post-Brexit, with government resources and guidance made available to assist businesses in this process. However, many still face uncertainty as they adapt to the new rules.
You’ll probably have noticed the big push on initiatives like “Making Tax Digital” to streamline tax administration, especially for VAT.
Future implications and considerations
Even though it has been eight years since the referendum in 2024, the UK is still shaping its tax policies after Brexit.
The ongoing adjustments to VAT, customs duties, and corporate tax rates will still affect business decisions and economic growth. That means policymakers must carefully balance the need for revenue with building an attractive business environment.
Plus, the UK’s position as a global financial hub could be influenced by how it navigates these tax changes. Competitiveness relative to other jurisdictions, especially within the EU, will be crucial as businesses evaluate their operational bases and tax strategies.
Our final thoughts
Brexit has transformed the UK’s tax landscape, presenting both challenges and opportunities. As the country continues to define its post-EU identity, the focus will likely remain on creating a tax system that promotes economic growth, ensures compliance, and enhances the UK’s position in the global market. The full impact of these changes will continue to unfold, but the foundations for a distinct UK tax policy have already been established, paving the way for a new era.
