There has been a lot of discussion in the press recently about the macro economic implications of an exit from the EU. For me the only thing that has become clearer through it all, is that it is impossible to calculate if in the long run we will be better or worse off. We can take some guesses but the unknown variables far outweigh the known ones, so they are weak guesses.
Just like in the Scottish referendum, the analogy of a divorcing couple seems appropriate (albeit it one where the balance of power is somewhat unequal). It is generally accepted that it is cheaper to live in a shared household than individually; however depending on how the resources of the household are shared, the individual members may not be financially better off than if they lived alone. Nonetheless, the benefits of co-habitation are greater than just the financial ones, there is the sharing of responsibility and chores and the refining of character that comes from compromise and collaboration.
Certainly a vote to leave will have some practical implications that need thinking through and none more so than for business and tax. Just like in a marriage each partner takes on roles and over time you find there are some things that you just don’t have to do anymore because they are taken care of for you. In the UK, we have significantly reduced our infrastructure in some areas for this reason. For example the Accounting Standards Board which sets the rules under which UK companies draw up accounts is a significantly reduced organisation from what it used to be, as now it’s role is to implement changes mandated in Europe in a UK setting, as opposed to creating standards from scratch. The majority of the rules that govern VAT law are set in Europe and our membership of the EU and the EEA for VAT means that we can engage with EU mandated requirements such as VAT MOSS through our UK VAT authority.
Fortunately, we would not have some of the problems identified with a leave vote in the Scottish referendum, we already have a sovereign government and all EU legislation has to be ratified and made into UK law by our parliament. Consequently, a vote to leave does not leave us with a ‘void’ in our legal framework so the laws effecting day to day business would be unaffected in the short term.
However, it is clear that we would need to increase our central infrastructure in order to take back some of these roles.
So in practical terms if Britain leaves the EU what might that mean for your business?
Well for those of our clients that have VAT MOSS reporting requirements, there may be a requirement to register for VAT within an EU country to continue to meet these obligations. US and Australasian companies have generally registered in Ireland for this. Complying with VAT MOSS is already costly and cumbersome and this would potentially be more so if our obligations could not be met through a UK VAT authority outside of the EU. Nonetheless, this can be overcome by using a third-party marketplace as opposed to selling directly, of course with a resultant reduction in margin.
On the plus side, it could mean the end to EC Sales lists and a straight forward zero-rating of all goods shipped outside the EU but conversely the introduction of customs declarations and potentially import duty and VAT on landing in the EU increasing the cost of export.
If you are an importer, again there is likely to be an increased cost from increased administration of import and there may be additional duty costs in time. Conversely, if your business is unable to recover VAT, digital services bought from outside the EU may become cheaper if our government does not choose to implement a local equivalent of VAT MOSS.
In an increasingly global world, I cannot think of many clients who do not import or export to some degree, even if they don’t view themselves as doing so. Such activities as buying facebook ads, google apps or dropbox are all effectively imports and with many businesses increasingly selling online, exporting is also much more common. For a small business being part of a single market should reduce the red tape involved in this but that doesn’t always seem to be the case.
But ultimately, the decision is not about money, it is about values, just like for any couple considering divorce . Do our goals and values align in such a way that we can achieve more together or do they vary so that we will be happier and more productive apart? So for me, I will be voting with my instinct and my heart and trusting that no matter what we decide as a nation we will be constructive in building the best future we can, whether in or out.