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UK Prime Minister’s Statement – 14 October 2022

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On 14 October, as an important deadline loomed for Bank of England support of the government bond markets to expire, the government’s political turmoil ratcheted up as the fallout from the ‘fiscal event’ of 23 September claimed its first scalp.

A new Chancellor

Jeremy Hunt replaced Kwasi Kwarteng as Chancellor, making him the fourth Chancellor in as many months.

Chris Philp, the Chief Secretary to the Treasury, was also sacked. He was replaced by Ed Argar, formerly the Paymaster General and Minister to the Cabinet Office.

Corporation tax

At a press conference (the House of Commons was not sitting), the Prime Minister announced that the planned reversal of the increase to corporation tax would not go ahead. The rise from April 2023 to a main rate of 25%, with reduced rates for companies with profits below £250,000, was legislated for in the Finance Act 2021.

31 October remains the date when the Medium-Term Fiscal Plan will be announced. The Prime Minister said that the £18bn tax savings from the corporation tax reversal was a ‘down payment’ on this strategy. That still leaves a shortfall of about £24bn in 2026/27 stemming from September’s announcement.

Spending, said Liz Truss, would grow ‘less rapidly than previously planned’.

Timetable of reversals

Today’s announcements were the culmination of a series of statements and retractions over the last few weeks:

·      On 26 September the previous Chancellor, Kwasi Kwarteng issued an ‘Update on Growth Plan Implementation’ revealing that his Medium-Term Fiscal Plan would be presented on 23 November, alongside a forecast from the Office for Budget Responsibility (OBR).

·      The planned abolition of the 45% tax rate announced in September’s ‘mini-Budget’ survived just ten days before being reversed on 3 October.

·      Seven days later, on 10 October, the Treasury announced that the Chancellor would bring forward the announcement of his Medium-Term Fiscal Plan from 23 November to 31 October.

This last date for the calendar is one of the surviving elements of Kwasi Kwarteng’s planning which Jeremy Hunt will now take forward.

Photo by Juli Kosolapova on Unsplash

Navigating VAT in a post Brexit world

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Many businesses are struggling with the VAT regime in place since Brexit, especially when it comes to exporting goods to the EU. We address some of the common misunderstandings.

Exporting goods

Provided you have proof of postage or shipment, goods exported from the UK to the EU are zero-rated. However, as businesses are finding out, problems arise because the VAT implications of importing into the EU must also be factored in.

Most businesses will need to accept responsibility for the EU VAT and therefore export on delivered duty paid terms. This adds significant cost unless you register for VAT in each country exported to so that VAT can be recovered. However, the introduction of the EU’s one stop shop from 1 July 2021 will mean just one EU member state VAT registration will be required for consignments of less than 150 Euros.

Many businesses are setting up an EU base to get around the worst of the problems, which the government has appeared to encourage. The Netherlands, with English spoken by most, is a popular choice, and Dutch logistics and warehousing companies are seeing high demand for their services.

Imported goods

The introduction of postponed import VAT accounting means that, in most cases, import VAT does not need to be paid upfront. Instead, import VAT is accounted for as a reverse charge on the VAT return. You or your agent simply need to indicate on the customs declaration that postponed accounting will be used.

Services

VAT on business to business services remains essentially the same, with the place of supply generally where the recipient belongs. There is no longer any need to submit EC sales lists for goods exported or services supplied to the EU.

HMRC guidance on VAT on exports can be found here.

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Life After Brexit – Travel to Europe on Business

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Continuing my immigration theme from earlier this week, I thought I’d comment on business travel to the EU as this has become significantly more complicated since 1 January, with many activities carried out by short-term business visitors now requiring a work permit. Business travel includes activities such as travelling for meetings and conferences, providing services, and touring art or music.

The 90-day rule

If you travel to Schengen area countries (including Switzerland, Norway, Iceland and Liechtenstein) for less than 90 days in a 180-day period, certain activities, such as attending a business meeting or conference, conducting market research or a sales trip, are permitted without the need for a visa or work permit.

Bulgaria, Croatia, Cyprus and Romania, who are not yet Schengen area countries, form a separate bloc, with another combined limit of 90 days’ entry. You can spend 30 days each in France, Germany and Spain, but 30 days in France and Germany, followed by 31 days in Spain would breach the 90-day limit. However, there would be no problem if the second, 31-day trip was instead to, say, Romania.

Business travellers will need to track how many days they spend in the EU, although this should be fairly straightforward given your passport will be stamped on entry to and exit from each EU country you visit.

When the 90-day rule does not apply

A visa, work permit or other documentation may be required if you are planning to stay for longer than 90 days in a 180-day period, or if you’ll be doing any of the following:

  • carrying out a contract to provide a service to a client in an EU country in which your employer has no presence;
  • providing services in an EU country as a self-employed person; or
  • transferring from the UK branch of a company to a branch in an EU country, even if just for a short period of time.

Advice about travelling abroad, including the latest information on Covid-19, safety and security, entry requirements and travel warnings, can be found on the government’s travel advice website.

Photo by KOBU Agency on Unsplash

 

Brexit and the impact on immigration rules

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With the end of freedom of movement between the UK and EU from 1 January 2021, the UK has introduced an immigration system that treats all applicants equally. Anyone recruited to work in the UK from outside the UK, excluding Irish citizens, must meet certain requirements and apply for permission. Employers will need a sponsor licence.

The new system does not apply to EEA or Swiss citizens already employed in the UK, although they will have to apply under the EU Settlement Scheme to continue living in the UK.

Sponsor licences

A sponsor licence will normally be required to employ someone from outside the UK, with the application process typically taking six to eight weeks. Once obtained, the licence is valid for four years.

The licence can cover those with long-term job offers and temporary workers. You can apply for a licence covering one or both types of worker. Before applying to be a sponsor, you should check that the people you want to hire will meet the requirements for coming to the UK for work.

Skilled worker route

This will be the route for most workers employed from outside the UK. Visas are only awarded to those who gain sufficient points, with key requirements including:

  • job offer at the required skill level (A Level and equivalent);
  • English spoken to the required standard; and
  • minimum salary threshold.

Applicants can trade characteristics, such as their qualifications, against a lower salary to get the required number of points.

Impact on recruitment

As expected, the impact on employers and their workforces will be varied. You can no longer rely on EU recruitment to fill low-skilled and mid-level occupations, while those recruiting skilled workers face more onerous requirements and greater expense.

The retention of existing workers is more important than ever, and you will need to plan over the longer term how vacancies are to be filled. For some companies, remote working may offer a solution.

A good starting point for anyone looking to employ from outside the UK is the introduction to new recruitment rules for employers found here.

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Known Knowns and Not knowing What You Don’t Know

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One of my favourite quotes from the Bush II administration (and there were a few) is the famous quote from then Secretary of Defence, Donald Rumsfeld who famously said:

“Reports that say that something hasn’t happened are always interesting to me because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tends to be the difficult ones.”

Reliable reports have it that with less than a month to go until the Brexit transition period ends, just one in five businesses have a good understanding of the risks and enough preparations in place, according to a survey by one of the largest accountancy firms EY. Many firms believe that after some initial challenges, business as usual will resume soon after 1 January 2021. In reality, whether or not the UK and EU succeed in negotiating a trade deal, there will be massive changes to the UK’s trading, regulatory and immigration systems. Business disruptions are guaranteed and it is still unclear how many new processes will work effectively.

Businesses that trade goods with the EU will be significantly affected, regardless of whether there is a trade deal. And getting ready for the new processes takes time. Businesses that trade with Europe will have to make customs declarations for, and pay the relevant tariffs on, goods moved between the UK and Europe. You may need to take advantage of one of the specialist services available to complete the often complex forms. Some businesses may be able to delay declarations and duty payments, but there are conditions.

Moving goods between Great Britain and Northern Ireland will be subject to special rules under the Northern Ireland Protocol. Businesses involved in such trade can sign up to a free government trader support service but need to be preparing now.

There will also be new rules for providing services. If you rely on professional qualifications to practice in the EU, you may need to act to get them recognised by EU regulators. You may need a work permit or visa if you travel on business to the EU and Brexit will also affect the cross-border transfer of personal data.

It will be more difficult for businesses to hire workers from the EU. A points-based immigration system will treat EU and non-EU citizens equally and only businesses registered as licensed sponsors will be able to hire non-UK workers.

Opportunities to supply the public sector in the UK will be advertised on a new UK internet portal instead of on the EU Tenders Electronic Daily.

The UK will also leave EU intellectual property systems and this will affect how the rules for trademarks and designs operate. You may have to take steps to ensure your intellectual property is protected in your main markets.

So, returning to Mr Rumsfeld’s quote, I’ve come up with a shorter version: “Whilst I May Not Know What I Don’t Know, I Do Know What I Do Know” and the above represent just some of the known changes. It is essential that businesses watch out for announcements of changes to UK and EU guidance and be ready to act upon them. Further information on some of these issues is available at https://www.gov.uk/transition.

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