There is only one news item from June, Brexit!BRITEXIT

In case you missed it! (Although England being knocked out the Euro finals by Iceland is not far behind!). In the words of Lenin, “There are decades where nothing happens; and there are weeks where decades happen.” It’s certainly felt as though we’ve had more than a decade’s worth of news in the days since the Brexit result was announced.
At Harbour Key we have sat back and watched matters unfold following the result. Clients are approaching us with questions on what is going to happen, what is the impact etc. All we can say at this stage is that it is very difficult to predict, the only certainty is that the UK is leaving the EU.

All businesses are facing the same changes; currency depreciation, possible inflation, labour market pressures, and uncertainties over the UK’s eventual EU exit deal, we have put together some advice points on the situation.

The Federation of Small Businesses (FSB), National Enterprise Network (NEA), Open to Export, Association of Independent Professionals and the Self-employed (IPSE), The Entrepreneurs Network (TEN), the Institute of Chartered Accountants, England and Wales (ICAEW), Enterprise Nation and Coadec are working together to offer ideas around what owners should be doing to shore up their businesses for the future. We will be providing regular Brexit updates as matters develop throughout the change process.

For now, a few Harbour Key pointers:

Export Businesses

For businesses that import, the drop in the pound will have an impact, but for exporters, the Brexit result isn’t such bad news, UK goods are cheaper therefore should attract buyers and therefore exporters should look to exploit this opportunity. If not already exploiting the export market, businesses should check the UK Trade & Investment website for events and trade missions, as well as other potentially useful organisations. For example, Angels Unleashed is running a trip to India for start-ups seeking expansion into or investment from India.

Funding for Business

Access to finance for business has been through a difficult period and could continue to be difficult, despite a potential interest rate cut.

It has been estimated that around £6bn of investment in the UK economy has been delayed due to the EU referendum, according to the Centre for Economics and Business Research (CEBR). However it also predicted that 30% of this sum could return quickly now the result is known. “The investment rush should prop up the UK economy in the third quarter of the year,” Douglas McWilliams, president of the CEBR.

We would advise that if you have no credit lines in, even an overdraft facility, you should look to arrange something now or have it agreed in principal in case it is required in the future.

Currently, as we are still members of the EU, continue looking and apply for EU funding opportunities. The European Investment Fund (EIF) is one of the largest investors in UK venture capital firms – whether this funding stream remains in place, and for how long, is a major question but the UK is signed up for the duration of the H2020 scheme which ends in 2020.

Fall in the Value of the Pound

The weak pound results in a higher cost of imports both for the consumer and businesses. It is now very hard to protect against such a rapid fall, if steps were not taken before the vote.  For businesses and those individuals going on holiday overseas this summer, it is a case of deciding whether to lock in now at todays rate or wait to see whether we have a recovery.

An emergency Budget?dc

The Chancellor indicated that if Britain left the EU there would be an emergency Budget. However this is unlikely following the PM’s resignation and as part of his statement advised that he would not be making any decisions concerning the country’s future as it prepares to exit. Therefore it would seem unlikely that the Chancellor will deliver a Budget until Theresa May takes up office and new Cabinet is in place. More likely is that the Autumn Statement, at the end of November, will be the first Budget after the vote, but this may still be too early with a new Cabinet only shortly in place and the possibility of a General Election not out of the question.

Tax – Recent Budgets

A more immediate impact is likely to be the progress of the Finance Bill 2016, which includes the legislation to enact the measures announced in the last Autumn Statement (November 2015) and Spring Budget (March 2016), which have yet to be passed. The timetable for the Act has been delayed due to the referendum, meaning that enactment is not expected until October 2016, when it is normally finalised in July.  October enactment still appears a difficult task with the Parliamentary summer recess and the instability within the parties on both sides of the bench creating uncertainty as to whether the Bill will be passed in its current draft form, or at all.  If this happens then much of the more difficult tax changes originally expected to be effective from 6 April 2016 could be left out.


The long term impact of Brexit on the property market is pretty much unknown, but again due to a weak pound, there could be an increase in overseas demand for UK property despite the short term dip in the major housebuilders’ shares.

Customs Duties

No duties are imposed on the movement of goods within the EU, therefore upon leaving the EU there are two immediate implications. Firstly, EU member states may apply the duty tariff to goods sourced from the UK.  Secondly, the UK may choose to apply duty to goods imported from the EU member states.  It is possible of course that tariff free access, or favourable rates may be negotiated as part of the exit deal but if not then the duty position may affect the UK’s trade competitiveness within Europe.

However a potentially positive outcome is that the UK is unlikely to be bound by the EU tariff rates for imports from non-EU member states. It will therefore be possible to set our own duty rates to favour our own productivity and protect certain industries, such as the steel industry and farming.


Despite being a European tax, it is very unlikely that we will see VAT abolished or altered significantly as it is the third largest source of tax revenue for the government.

At present, sales of goods to and from EU member states are treated as dispatches and acquisitions, these will now be exports and imports. This will have an impact on cash-flow for businesses which trade with EU member states.  For those significantly impacted this may potentially be mitigated with a deferment arrangement with HM Revenue & Customs and it is hoped that these arrangements would be made available more readily to businesses.

Corporate Tax

The Chancellor is already making noises about the possibility of lowering UK corporation tax to 15%, to make the UK attractive to business.

For those with EU subsidiaries, the flow of dividends between countries, will revert to relying upon the Double Tax Conventions between the UK and each individual member state, many of which provide for reduced rates but very few apply no withholding at all.

Much corporate international tax policy, including the current draft EU Anti-Tax Avoidance Directive, is now being set by the OECD’s Base Erosion and Profit Shifting (BEPS) agenda. As the UK has been a driving force in this process as a member of the G20 and has already enacted a number of implementation measures, it is very unlikely that our path will differ significantly from that of the EU in this area.

Potentially on the positive side is the impact upon many of our company tax incentives which are currently limited under EU State Aid rules. An example is Research and Development Tax Relief where the rates of relief available to SME’s must be approved by the European Commission, and then the relief is restricted further if the company gains any further State Aid grant income.  There are also EU restrictions on equity investment incentives such as the enterprise investment scheme and the original version of the patent box regime to encourage research and innovation has had to be “watered down”.


From a tax perspective the direct impact for individuals is likely to be less significant than for businesses. However, Individuals who own properties in other EU states could find that they are no longer protected from the punitive tax and social charges that are imposed by some EU countries on non-EU nationals.  For example, action was recently taken by the EU against the Spanish Government who were charging non-Spanish EU residents a higher rate of capital gains tax, compared to Spanish residents.

Protection from double taxation comes from the Double Tax Conventions between the UK and each EU member state so this will see relatively little impact, albeit there may be some rate increases in some cases.

From an employee mobility perspective there is a possibility that the current arrangements whereby social security contributions are only paid in one member state may disappear. The UK of course could still apply this for outbound employees but if other states do not extend the same relief to the UK then this could make it very costly for businesses within EU member states to send employees to the UK, unless the UK gave up its inbound taxing rights also which would be unlikely.

The other impact for individuals, or those with savings, is the likely drop in interest rates, but they were nothing to shout about before the decision to leave the EU!

We are in interesting times, which change daily. We at Harbour Key will try and keep you updated as matters unfold.


11 July 2016