The main tax considerations for UK/EU trading following Brexit

The impact of Brexit on UK/EU trade 

It has been seven years since the UK narrowly voted to leave the European Union, but businesses are still struggling to navigate the operational and financial ramifications of this departure.  

In terms of tax, there are several changes for UK businesses in the post-Brexit landscape. This includes new direct and indirect taxes on cross-border transactions and a raised corporation tax rate. These changes are driven by the UK’s new non-EU country status which means the loss of EU fundamental freedoms and taxation directives.  

The official Brexit agreement came into play January 2021, but its complex nature has left many companies confused. The option of tax automation software is a useful tool in tracking and understanding key changes to help ensure continued compliancy.  

Make sure you are on top of the main tax considerations for UK/EU trading following Brexit and how they apply to your business. 

Tax considerations for UK/EU trading 

Corporation tax 

All UK-based companies pay corporation tax on trading and investment profits generated within the UK and abroad. This applied before Brexit and continues to apply to UK businesses today.  

However, UK corporation tax recently rose from 19% to 25% to match leading EU economies such as France and Spain. Not only does this make the UK less competitive, but it also reduces UK company profits after tax. 

In contrast, the Republic of Ireland – which remains in the EU – has a corporation tax rate of 12.5%. This, alongside the fact that it is an English-speaking country, makes it an attractive base for international businesses looking to expand throughout Europe. Companies may choose to have a holding in Ireland rather than the UK, a complete reversal of pre-Brexit decision-making. 

Indirect taxes 

Now that the UK is no longer part of the EU VAT area, there is now a customs border in place. In trading terms, ‘dispatches’ are now treated as exports, and ‘acquisitions’ are classes as imports.  

The key Value Added Tax (VAT) changes are the removal of low-value consignment relief and the application of VAT at the point of sale on imports valued at £135 or under. In B2B deals, this VAT is reverse-charged to the customer, while the seller is responsible for VAT payments in B2C transactions. 

VAT on exports has changed too. Exports to EU countries now reflect those to non-EU countries and should be zero-rated for UK VAT.  

It’s important for businesses to be clear on their role in the supply chain if moving goods between the UK and EU, and account for any duties or VAT due. 

Direct taxes 

In the European Union, member states can’t impose withholding taxes on intra-EU cross-border payments and dividends. As the UK is no longer a member state, these may now apply when moving money between an EU branch and UK parent establishment (and vice versa).  

The UK will now have to take steps to agree Double Tax Treaties with individual member states to avoid this happening. These treaties prevent excessive taxation and protect against double taxation in foreign trade deals. UK businesses will need to stay up-to-date with the individual deals agreed with each EU country. 

Capital gains tax will also be applied on some cross-border mergers, share exchanges, and the sale of assets between EU/UK companies.