Brexit. So, what next? | Tax Talk

The long wait is over; the UK finally left the EU on 31 January 2020. So, what next?

Initially, not a great deal on the face of it. The Withdrawal Agreement includes a transition period which will run until the end of 2020 and during this period, the UK carries on as if it were still part of the EU. There is the option to extend this period if both the UK and EU-27 wish to (a request must be made before the end of June 2020 by the UK), but the UK Prime Minister has stated he will not extend beyond the end of 2020, so businesses shouldn’t plan for any further extension. 

The UK and EU now move into Phase two of the negotiations which will be to agree on the future economic partnership between them. The intention is that this will be completed during the transition period, which leaves 11 months to complete a very significant negotiation.

This is an extremely ambitious timescale to agree a future trading relationship. This may be an unrealistic timeframe in which to get anything substantive agreed, as both the UK and the EU still have to agree their respective negotiating positions.  However, it should be possible to agree the principle elements of a free trade agreement with the UK favouring some form of ‘Canada style’ free trade agreement. What this will ultimately look like and what it will cover is unknown at this stage.

Ultimately and if the transition period ends without an extension and without agreement, the UK will have to trade with the EU on WTO terms – ‘No Deal’ arriving despite the Withdrawal Agreement being in place.

Although the Isle of Man was never part of the EU, it did have access to a trading relationship for goods by virtue of being part of the EU’s VAT and Customs territory. This arrangement will continue during the transition period. Local businesses in the service sector may well notice little difference, but for businesses trading in goods, it is a different matter. The future trading relationship is therefore of great importance to the Island.

On a positive note, there is the opportunity of new free trade agreements providing increasingly unrestricted access to the world markets. The UK can now negotiate bilaterally with other non-EU countries creating new trading markets. The Isle of Man can also benefit from this.

How these scenarios play out is not clear at this stage, and things should become clearer as 2020 progresses. There is still uncertainty and no time for complacency. Over the next weeks and months, it is vital that all businesses keep an eye on developments and, for now at least, continue to prepare for the ‘default’ option of a No Deal exit on 31 December 2020. 

For further information on some of the key indirect tax issues and steps for businesses to consider to be ready to do business with the EU in the event of a No Deal, see my previous article Brexit - The Final Countdown?.