The outcome of the EU Referendum has delivered a major shock whichever way you voted. So we should start with the reminders from the European Commission and from HMRC: nothing has immediately changed. The UK remains a member of the EU, with all the benefits and obligations that brings. And tax will continue to be due, as normal. The Finance Bill will be debated in the House of Commons, although we do not yet know whether it might become law by 21 July or be carried over to after the summer recess.

What might the future bring? It’s far too soon to understand what type of formal relationship we might in the future have with the EU. There is much talk in the media about Norway and Switzerland; both countries have access for their goods and services to the EU’s Single Market, in return for free movement of people and a monetary contribution.

These models bring with them access to the EU’s direct tax directives but require adherence to the ‘freedoms’ in the EU Treaties and the European Economic Area equivalent. Freedom of establishment and free movement of capital have been the basis of a number of cases before the Court of Justice of the EU and essentially require that there is no discrimination against foreign investment.

Being outside the EU does mean that our VAT system becomes ours alone, and decoupled from the VAT Directives. The jurisprudence of the CJEU will become merely an aid to interpretation by the British courts, as the CJEU would have no role after secession. Movements of goods and services into or from the EU become imports and exports, as opposed to acquisitions and disposals. The difference comes in additional documentation and a likely acceleration of VAT payments.

Intrastate returns no longer become relevant, though. This VAT change may well be the most burdensome change for some, as systems need to be altered to manage the new approach. The government of the day would be free to make VAT changes as it sees fit, without being bound by the EU Directives. It would be remarkable if a government were to replace VAT with another tax though; VAT is the consumption tax of global choice. VAT is also the third largest contributor to the Exchequer and a post-EU Britain would certainly need tax revenues. 

UK businesses supplying digital services to EU consumers might need to register in another EU state under the mini one-stop shop scheme. In turn, the UK would need to introduce its own scheme for foreign sellers supplying UK consumers. 

Customs duty would be next on the list, as it too is a European levy. As well as its Single Market agreements, the EU has entered into customs union with Turkey and three tiny states. It is possible that the UK could end up with that position – essentially removing duty on trade to/from the EU.  We would need to legislate for our own system and no doubt customs and international trade programmes would apply, including Authorised Economic Operator and the temporary import and duty suspension rules.

There would be fewer major changes to direct tax, although some models could involve removing the UK’s access to directives which reduce or eliminate tax, such as the Parent-Subsidiary directive for dividends; the Interest & Royalties directive and the Mergers directive.

The UK does have an excellent range of double tax treaties but it could not completely replicate the EU effect. Other tax reliefs may depend on being an EU member. For example, the Limitation on Benefits clauses in some US treaties with various EU countries would remove the benefit where the EU recipient was no longer owned by another EU member. We give some reliefs for transaction with EU members – as do other EU states in return. Businesses and funds will need to consider withholding taxes to make sure they don’t impose a cost. It’s not true to suggest, though, that businesses are likely to relocate for direct tax reasons, although market access could be another story. 

The Treasury and HMRC will be faced with significant challenges, as they will need to design new law and systems, as well as negotiate with the other EU states on the new relationship. There is unlikely to be much room for new UK initiatives.