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Brexit: How will "No Deal" affect the self-employed?

Whilst Theresa May’s recent announcement that MP’s will cast their final vote on the Brexit deal by the 12th of March has frustrated much of Parliament, it does indicate that there is one last opportunity to garner an overarching deal before the UK officially leaves the EU on the 29th.


There is still considerable uncertainty over what the future holds for the British public, including the five million or so self-employed, however might be forgiven for feeling like the UK is no closer to securing a deal that, amongst many other things, might give some confidence and reassurance to both UK nationals providing services in the EU as well as the tens of thousands of EU nationals trading on a self-employed basis in the UK.

Whilst there have been many areas of negotiation with the EU, the foremost being the controversial Northern Irish ‘back-stop’, we wanted to look at some of the key considerations for the likely scenarios on the self-employed.


Background

As part of the European Union, UK businesses have enjoyed many benefits, including favourable trade agreements, free movement, and certain exemptions and simplifications on Value-Added Tax (VAT). As part of the taxation and customs union, there is in place several tax treaties which prevents self-employed individuals providing services in another EU member state to suffer double taxation from both countries. This background has allowed, and perhaps encouraged self-employed businesses to move and trade freely within the EU.


EU Migration to the UK

According to a recent study by Oxford Economics, on average EU migrants contribute £2,300 more to the exchequer each year than British-born residents. This means that over a lifetime of working they would pay in £78,000 more than they would take out in public services and benefits, assuming a balanced National Budget. In the same circumstances, the average UK citizens net contribution is zero.


The lead researcher, Ian Mulheirn, says, “When it comes to the public finances, European migrants contribute substantially more than they cost, easing the tax burden on other taxpayers.”


In the event of a ‘no-deal’ Brexit, citizens of EU member states might be prevented, or disincentivised to come to the UK which could ultimately have the effect of increasing the burden on UK taxpayers, who are left to pick up the tab left by those EU migrants who had made such a positive average contribution.


This report comes after the Migration Advisory Committee (MAC) called for government to make a post-Brexit immigration system that makes it easier for high skilled workers to come to the UK, whilst limiting access to those lower skilled workers who might be considered as a burden to the UK. Contrary to this thinking, Mulheirn advises, “most migrants arrive fully educated, and many leave before the costs of retirement start to weigh on the public finances.”


One way of mitigating this potential financial shortfall and uncertainty is if the UK were to remain part of a tax and customs union with the EU, into April and beyond, which may be viewed by the general public as not really delivering on the intention of the referendum.


VAT

Currently set at £85,000, Britain has the highest VAT registration threshold in the EU, which it’s able to keep by virtue of certain veto powers it has as a member of the EU. Post-Brexit, the UK faces the prospect of being forced by the EU to lower the VAT threshold to £76,300 as a result of the loss of these veto powers. This drop would especially impact non VAT registered businesses and the self-employed with turnover above the EU limit, but below the current UK limit who will find themselves with extra responsibilities, if not also a few potential benefits.


Whilst the government’s aim is to secure a deal and to keep VAT procedures, “as close as possible to what they currently are”, if the UK leaves the EU without a deal then there will be several changes required to the VAT rules and procedures that apply to transactions between the UK and EU member states.


Whilst the detail is yet to be agreed and businesses notified, the government has set out a number of recommendations in a VAT guidance note published on the .gov website. For UK business and the self-employed providing services to EU based customers, the so-called ‘place of supply’ rules will continue to be used to determine the country in which VAT needs to be charged and reported.


For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, deduction rules for VAT on expenses for financial services supplied to the EU may be changed.


For those UK businesses providing digital services to EU citizens, VAT on services will be due in the EU state in which the company’s customers are based. For those who currently use the Mini One Stop Shop (MOSS), an online service that allows digital service providers that trade with the EU to report and pay VAT using a single return in their home country, will need to register for the VAT MOSS non-Union scheme after the 29th of March, or alternatively will have to register for VAT in each country they trade.


It is also recommended that UK businesses trading in the UK make any refund claims for VAT incurred in member EU states for 2018 before the March 29, 2019 deadline date - it is expected that the claims process will change in the event of ‘no deal’.


With the March deadline round the corner, the two main parties falling apart, parliament in chaos and the EU seemingly immovable on the issue of the Irish border it is still in doubt whether a revised deal can even be reached, or if the whole processed may be delayed if Parliament backs the Cooper Letwin Amendment to pause Article 50 until a deal can be reached. Will this buy us more time, or simply delay the inevitable?


Alongside the rest of the country, we will continue to monitor events and will keep our customers and relevant stakeholders updated on any potential impacts.

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