Does my bum look big in this?

I am persistently asked two questions about Brexit by clients and advisers based outside the UK:

  • what is going to happen and
  • why did the UK electorate decide to leave the EU?

These have become the impossible questions.  To my mind they stand alongside that question no husband can ever answer – “Does my bum look big in this?”

Interestingly understanding the reasons why the UK voted to leave the EU could be the key to getting a settlement.  There is a problem though.

The question on the referendum paper was “Should the United Kingdom remain a member of the European Union?” or “A ddylai’r Deyrnas Unedig ddal i fod yn aelod o’r Undeb Ewropeaidd?” in Welsh.  That’s it.  That is the sum total of the question and the answer was either “Yes” or “No”.  Not “Yes, because…” or “No, because….”, just “Yes” or “No”.  So, despite the claims of many politicians and pundits, no-one actually knows why the UK electorate were in favour of leaving.  Indeed, according to opinion pollsters, the UK electorate is similarly split right now.  Still.

Of course, some reliance has been placed on pollsters as to why people voted to leave.  However, given their recent track record (including on the Brexit vote itself) I think anything they say must be taken with a pinch of salt.  At this stage I would expect UK readers to start on the usual rants from each side of the divide (and it is a divide) with comments such as the people were not told the truth or the Remainers didn’t make their case, or experts can’t be trusted.  But that really does not help us, bar being able to confirm that there is absolutely no clarity as to the reasons, and less as to how these are being addressed by the Brexit process.

I think that there is some common consensus that the main reason for the UK voting the way it did was immigration.  And indeed, that is a live issue in many other EU member states, although perhaps not so much because of the movement of EU citizens to those countries.  From what I understand the arguments elsewhere in the EU are similar: –

  • “They’re taking our jobs and driving down wages”;
  • “They’re living off our benefits” (not quite sure how 1 and 2 interact except in the case of workers paid pitifully low wages);
  • “They’re filling up our schools”. Well there is no doubt the UK education system is under pressure, but one wonders whether it is purely down to immigration; and
  • “They’re using up resources in the health service making it difficult for us to get treatment.“ There is no doubt that the NHS is under pressure in the UK, but little evidence that it is to any major extend due to immigration.

Perceptions matter, and these seem to have been the drivers as regards immigration.  As the UK is now finding out, taking the NHS as an example, the NHS is very reliant on staff from other member states.  There is now net migration from the UK of NHS staff from the EU, and fewer job applicants from other EU member states.  Migrants to the UK tend to be younger and have less chronic illnesses, but it is fair to say they tend to bear children and thus take up resources in that respect.  But the real pressure on the NHS seems to come from older patients, especially when it comes to “bed blocking”.

Close behind, certainly as far as the politicians are concerned is “taking back control”.  Now I do accept that readers from elsewhere in the EU may find this rather incredible, not least because of the special deals available to the UK from the EU. However, once again, this seems to be an issue echoed in other member states, so it is not just a British issue.  Whether it is fair or not is neither here nor there.  What is relevant is the perception.

And perhaps next, is the view that the EU costs the UK “too much”.  Whilst the politicians leading this argument were not very good at their sums (promising £350m a week for the NHS from the savings achieved by leaving the EU), the net cost to the UK is estimated as £200m a week. That does not take into account the new costs arising from protecting our borders, new tariff barriers to be passed, new agencies that will have to been put in place and the administrative cost to commerce in the UK of leaving.  Now we all know that when the UK leaves the EU, someone else will have to find this money or else EU budgets will have to be cut.  And it is now too late to clarify what other benefits the UK gets for the sum of approximately £10bn a year (about the cost of an aircraft carrier without the aircraft).  Certainly, a big benefit is being a member of the Single Market as well as the Customs Union, but in the UK those terms have become as bad news as “Brussels” or “European Parliament”.  A dwindling assertion is that the UK will be better off outside both the Single Market and the Customs Union – it is starting to suffer like the death of a thousand cuts principally as jobs are lost from the UK and relocated in other member states.  However, it is still an assertion that many politicians from across the board, as well as many of the electorate, cling to.

And this last point does also have some echoes politically in Germany and France in particular – the big budget contributors.

And therefore, I say that the Brexit solution requires an understanding by the negotiators as to why the UK is leaving.  That may help colour their positions so that they can get closer to a solution.  And it is also why I argue that the Brexit solution is almost certainly of as much relevance to other member states, principally France and Germany, as it does to the UK.  There are aspects of the EU that do need to be addressed.  Whether Brexit is the right way of bringing the issues to the boil is another question.  And here I must lay some blame at the feet of the Commission and of other member states.

Prior to the referendum, Mr Cameron, who was then the UK Prime Minister (and whose political career was ruined by the Brexit decision) met with the EU in the Spring of 2016, before the referendum, and sought reform.  Put more bluntly he sought help so that he could set the referendum in the best possible light.  He brought sovereignty, migration, welfare benefits, economic governance and competitiveness as issues where reform was needed.  He got no meaningful help.  Indeed, he returned to the UK with an offer which the UK Public and Parliament saw as no different to the assurances Mr Chamberlain was given by Germany in 1939 – I do appreciate that some readers may find that offensive, but that is the reality as to how this was seen in the UK.  That was the perception gained by the UK electorate and Parliament.  And that was to then, in my opinion, play its part in the result of the referendum.  Many British people felt let down by the EU at that crucial stage.  Yet what Mr Cameron was seeking was no different to issues faced by other member states.  And as we now know, it seems that these were important issues for the UK electorate.

So, coming back to the first question – what is going to happen or where are we likely to end up with Brexit?  Well, if you were to put yourself in the shoes of the UK negotiators, you will see that they very much have their backs against the wall.  They really need some help from the EU here.  I do not believe we are talking about flexibility and creativity, as we are told by the UK Government.  I think that the other member states need to take stock, address the issues, many of which are common to other major member states, and then address reform.  The chance of achieving reform within the Brexit timetable is pitifully low.  There may be more chance of doing so within a reasonable transitional period.  And this would not be giving in to the British.  After all, the UK is now pretty certain to leave.  However, that may enable the UK to leave with a deal as opposed to crashing out which is of much good to the remaining member states as it is to the UK.

However, you may wish to ask yourself how likely it is that reform on key issues affecting mainly the larger member states can be achieved even within say four or five years?   And that is why, right now Covertax is preparing for the UK crashing out with no deal, but hoping that common sense will prevail.

And taxation.  Well taxation follows trade.  And commerce much depends on the trading terms between the counties.  And if you wish to be even more narrow, the EU is moving forward with modernising VAT and we don’t even know whether the UK will move forward with the same reforms.  There is a chance that it will not.  That then means a risk of different basic VAT systems in the UK and in the rest of the EU, leading to uncertainty as well as added cost for commerce.

So right now, the Brexit bum does look big in this.  Indeed, it may be better off trying to wear a tent.

The Warwickshire Dylan

The village idiot is sat on his bench watching the traffic go by the duck pond when a rather super car glides up next to him.  The window slides down and out pops a chappie’s head.

“I say, Dylan, do you know the way to Stratford?”

The village idiot paused, thought.  And then thought some more before he replied.

“I wouldn’t start from here if I were you.”

Now that may not be the most amusing anecdote, but it describes a position I encounter frequently when dealing with enquiries, whether from clients or those initiated by HMRC.  They tend to come in front of me starting with an assertion.  And when I check, quite frequently the enquiry has started from that assertion, and I wouldn’t start from there.

There are differences.  As a rule, clients tend to be content to accept that it is an assertion, go back to the real start of their journey and then explore the trip based on the facts.  After all, unless there is user error, a Satnav doesn’t start your journey miles from where you are (although mine does sometimes change its mind mid trip and try to take me somewhere else!).

With HMRC it tends to be difficult to get them to move away from their assertion, no matter how far from the real starting point it begins.  Sometimes this is not their fault.  The taxpayer may have started with an assertion and then not addressed the full facts.  It is still, however, difficult to get the idea out of the taxman’s head.  Sometimes they start their enquiry though with that assertion sitting in their head.  They may not admit that, would be horrified that I think that, but they do.  And once again I don’t blame them and can even empathise – my twelve years in Customs & Excise is a long time ago now, but I remember how we were trained; “they’re all at it, you’ve just got to find out how”.

My job, from a telephone enquiry, right through to a Tribunal tends to have three elements.  Establishing the facts.  Applying the law.  And then providing or arguing an opinion.

The first and the most important is establishing the facts.  You cannot seek to apply the law without full knowledge of the facts – and that applies equally to clients and taxmen.

Frequently this is not an easy task and it is not unusual for important facts to be omitted.  My clients’ typical comment is that “Oh, I didn’t think that was important”.  But sometimes it is more sinister.  For example, on a recent Alternative Dispute Resolution (“ADR”) case, it came out at the meeting that HMRC had withheld evidence from the taxpayer and us.  Indeed, this case is in Tribunal, and had diverted into ADR to clear the ground, and this evidence was not available to the Tribunal either.

So, there is a world of difference between instances of difficulty establishing the facts going from ignorance right through to withholding of evidence.  Which is why I spend a lot of time dealing with assertions.

Which reminds me….

The village idiot is sat there after a few pints at the pub over the duck pond when another rather super car glides to a stop and another chappie’s window slides down.

“I say, Dylan, can you tell me the way to Stratford?”
Dylan pauses, pauses a bit more and asks, “How do you know my name is Dylan?”
“Oh” said the chappie “I guessed”.
“Good” said Dylan “Guess the way to Stratford”

Steve Botham

Brexit – What about the people? All about social security (NIC)

Following her first article about Brexit and its effect on personal income tax, here is Melissa Dunkley’s second article in the series which looks at social security (what we call NIC in the UK). 

Melissa’s company, MD Advisory Limited, is a specialist tax adviser, dealing with the tax and social security position for expatriates.  She advises on both UK nationals going overseas and foreign nationals coming into the UK.  Email her at:

In the first article of the series we looked at personal income tax for UK nationals working in the EU and EU nationals working in the UK, and concluded that Brexit would not change much. So now let’s look at social security (what we call NIC in the UK).  Will that be affected?  OMG, yes!

I’m not going to focus on the availability of maternity pay or job seeking in another EU country. These are articles focused on workers and their employers. There are a lot of them out there who are correctly paying into the relevant tax and social security systems and they didn’t get much of a mention during the referendum or since.

For employers, social security is simply a cost. They have to contribute the employer’s percentage and get nothing for it except a corporate tax deduction. For employees, social security typically equates to little more than entitlement to a state pension. Let’s set the record straight on one thing before we go any further, entitlement to use the NHS does not come from paying NIC. The NHS is funded for the most part by the tax system and you are entitled to use it if you reside in the UK.

So, if you are a UK national going to work in the EU or an EU national coming to work in the UK, do you pay NIC or the other country’s equivalent? What does it do to your state pension?

The answer is you follow the rules in the social security agreement that exists for members of the EU (and EEA countries and Switzerland). Put simply, that agreement says that you pay in only one country at any given time and it should be the country in which you work, unless it’s a short time secondment (up to five years), then you can apply to stay in your home country’s system.  If you are working in multiple EU countries at the same time, there’s a set of rules to say which is the one and only country in which you pay.  The employer always pays in the same country as the employee.

Once Brexit happens, the UK is no longer in the EU and is no longer party to this agreement. Therefore, unless some special agreement is reached during the Brexit negotiations, one of two options will happen.
Before the UK joined the EU, there were individual social security agreements between the UK and some EU countries, France and Germany for example.  We could revert back to these but these haven’t been updated since before the UK joined the EU, so they’re in need of some work.  Besides which, has anyone still got a copy?  Remember also that at the time the UK went into the EU, a country called Yugoslavia existed, so there are a lot of EU members with whom no old social security agreement exists because they didn’t exist back then.

The other option is that we simply operate the rules that exist for nationals that come from other countries, with which the UK does not have a social security agreement, and there are many of those. In this scenario a UK national going on secondment to another EU country would most likely continue to have to pay NIC for the first year. They would also be liable to pay in the other country according to that country’s own rules. So that’s double “taxation” and there’s nothing you can do about it. If that EU country is France, that’s 12% UK + 20% FR for the employee and 13.8% UK + 48% FR for the employer, give or take.  So, you might get a pension in the future but you’ve got nothing to live on today.

And what about the state pension?  Most countries have a system whereby you have to contribute for a minimum number of years to get any pension at all.  In the UK the minimum is currently 10 years. Without the rules contained in the EU social security agreement, if you worked and paid in for 40 years but in five different EU countries, you would not get a state pension from any of them unless you reached each country’s minimum number of years.  However, the EU social security agreement contains provisions whereby you consider the contribution period across all member countries, i.e. 40 years, so that you qualify.  You then get effectively a proportion of the full pension from each country in which you’ve paid.
The other important point about pensions is inflation protection.  A UK resident receiving a UK state pension has their pension amount increased each year in line with whichever inflationary measure the government adopts.  Due to the non-discriminatory rules of the EU, an EU or UK pensioner living in the EU also gets the same inflationary increases each year.  However, a pensioner living in any other country does not.

If you retired today on the new basic pension of £159.55 a week, you would get the same £159.55 a week for the rest of your days.  If you don’t think £159.55 will buy you much today, imagine how much it won’t buy you in 20 or 30 years.

So, in summary, will leaving the EU have any effect on NIC?  Most definitely, yes.  Have we had any information yet about what might happen post departure? No.

My crystal balls are useless

I collect glass balls – paperweights mainly.  Some are crystal, but they are totally ineffective when it comes to looking into the future.  Especially so when I am asked by clients trading internationally where the UK is headed with Brexit.
March 2019 is not a long way away and in business planning terms 2021 is pretty close too.  If you were planning to build a factory to service the European market you’d like some idea as to where best place it.  And I now know that the UK is not necessarily ruled out by the prospect of Brexit, but that it is an important factor.

Part of my problem with Brexit is that the politicians keep blowing with the wind and stabbing each other in the back – on both sides of the English Channel.  In the UK, we don’t know at all what the Government’s Brexit will look like or when it will really be implemented.  And whilst I have had complaints about the political nature of some of my articles, politics is at the heart of this issue and taxation is never divisible from politics.  VAT in the UK was a consequence of the British political decision to join the European Community, as we then called it.  Even more appropriately, looking back, it was introduced on April Fool’s Day 1973. Hence some political awareness is necessary to try to divine what might happen.

Right now, the UK has asked the EU for a two-year implementation period, although nobody has told us what is to be implemented.  Of course, the EU could just say “no”, except we know the western Europe’s states have similar problems to the UK in that, for example, they do not have a Customs infrastructure to cope with Brexit at March 2019. The French for example are relying on a new Customs computer system, which the UK will use too, being delivered on time (work on it started way before the referendum but not in anticipation of the result). Somehow the French must recruit, train and house about 5000 extra customs staff, as we do. And then a similar number of customs agents will need to be recruited and traditionally they have come from National Customs services. So, it is going to be very hard for all states with an active border with the UK.

The UK has also suggested to the EU we stay in the Customs Union and the Single Market until Spring 2021 i.e. no change until 2021.  Provided that the remaining EU member states agree this proposal.
My best guess is that is exactly what will happen until 2021. The EU has as much chance of being ready by 2019 as does the UK. We could all be silly and wreck trade between the UK and the rest of the EU, but that would do as much economic damage to France, Germany and Holland as would be inflicted on the UK. In my opinion, the EU budget could not stand that, leaving the remaining member states in crisis.

After that is more difficult because politically the current UK Government must take the UK out of the Single Market and the Customs Union at that stage. It must abandon other trade structures such as EFTA and EEA because it has managed to mix them up in the public’s eye as being the EU. But it now knows the UK would be in a trade wilderness if we did that. And the UK could have had at least one change of Government along the way.

We have heard the UK politicians telling us that what will come will be different but have the same benefits. I think the EU politicians know what this means too.

I think the UK will seek to create a free trade area including the EU and countries like Norway, Switzerland and Iceland. It won’t be called the EEA because that is politically bad, it will be “new” but the same. I think that the Customs barrier will sit outside this new free trade area just as it does now. I can also see that within the new free trade area we will find harmonised indirect taxes which look remarkably like those of the Single Market, but it will be new and the UK will have a big say, just like it does now, but it will be different and better because it is not called the Single Market.

I think this brand new and much better body will negotiate trade deals with third countries just as the European Union does now, but it will be better allowing the UK to trade freely with the rest of the world, just as it does now (check out the tables published by the BBC recently).

I think this new world will take at least seven years to be agreed between the parties. In the meantime, the UK will blame the EU for terrible delays, the EU will blame the UK for not doing its homework and they will all agree to extend the implementation period which is not a transitional period.

So, nothing will change for seven years, but then it will be different but the same.

Of course, these new bodies will have to have their administrations somewhere else, possibly Madrid because the weather is so much better there.
And sadly I am not joking. The EU does not want the UK out and that body understands the art of compromise and finding solutions. Within seven years the UK may have once again found that art.

In the meantime, I suggest you read Machiavelli (the machinations), Nineteen Eighty-Four (the art of Newspeak and “Oceania”) and 1066 and All That (for the logic), and you’ll be as enlightened as any Government minister as to what is really happening.

You may gather that I am very cynical. I also do not believe I will be far off the mark.  But bear in mind that my crystal balls are useless.

Magna Carta and all that

Florence and the Magic Roundabout

I’m not talking about the Magic Roundabout, albeit there are similarities, as you will see, but the speech of the UK Prime Minister in Florence, Italy on Friday 22 September 2017.

For our clients doing business in the EU there was some good news and a big lump of no news.
Just to put this note in context, I am talking solely about UK proposals made by the Prime Minister in a speech and not even put to the other EU member states. This is not therefore agreed, but is well placed to be acceptable to the other EU member states.  If you are following Brexit from outside the UK, you may ask why we are unable to provide some clear messages.

There are three main reasons:

  1. In fifteen months, nothing has been agreed between the EU and the other member states except that the UK is leaving the EU.  This does not mean the UK must leave the Single Market (the free trade area) or the Customs Union (the trade barrier around the EU).
  2. The UK has only published position papers, proposals, which have little detail, and none of which have been agreed with the other EU member states; and
  3. UK Government ministers do not sing from the same hymn sheet, leaving the Prime Minister constantly undermined, and business having no certainty where the UK is headed.

The good news was simple:

  1. The United Kingdom accepts that it will not be ready for Brexit by the end of March 2019 (when it is due to leave the EU).  This will not come as a surprise to businesses, as the mountain to be climbed is huge, but it is very unusual for a politician to be so frank.
  2. The UK would like an “implementation period” of two years to get itself ready to leave.  This would mean leaving in 2021.  From what I can gather an “implementation period” is the same as a “transitional period”, which has previously been dismissed, but is more acceptable to the UK as it is our own idea.
  3. The UK would like to stay in the Single Market during the implementation period.  This is a change of heart as ministers had previously been adamant the UK would leave at the end of March 2019.  Massive credit again to politicians willing to be so frank.
  4. The UK would like to stay in the Customs Union during the implementation period.  This is also a change of heart.
  5. The UK would permit some interference from the European Court during this implementation period.  This too is a change of heart, but there is no detail as to where the UK would seek to curtail the court’s remit.  It is possible that the UK may decide not to curtail the court’s remit or even that the UK will have left by the time it makes a decision.
  6. The UK would continue to permit free movement of people during the transitional period, but may introduce a registration scheme which is already permitted within the EU and used in some member State.  There is no infrastructure for such a registration scheme in the UK. Quite when such a scheme will be ready, if ever, is anyone’s guess.
  7. The UK is now welcoming workers from other member states who are already in the UK and no longer has any intention other than to treat them exactly the same as they were treated before the referendum.  The implication is that they will not be thrown out of the UK, which is good news for the UK given the tens of thousands of EU workers who have left since the referendum.  Perhaps the UK may be able to attract some of them back as their loss has put particular strain on hotels, catering, agriculture and, most notably, the National Health Service.  Clearly acceptance of the remit of the European Court of Justice during the implementation period is essential to maintain the UK’s obligations.
  8. The UK will continue to honour its financial obligations to the EU during the implementation period.

So, this is all good and, to be fair both what business has asked for and, given the admission of being unable to meet the original Brexit deadline, common sense.  However:

  1. These are the UK latest set of proposals are nothing more than that.  Yet M Barnier, if not at least one of his senior contemporaries, seems to have seen it as a move in the right direction.
  2. Whilst the “implementation period” is proposed, just what will be implemented has not been set out.  We have various visions from leading ministers, some of which are conflicting, but no hard proposals.  We do not know what Brexit Britain will look like.  However, the frankness of the UK Prime Minister means that we do at least have an extra two years to find this out.  So, whilst Brexit means Brexit has not really changed, because we never knew what it did mean, clearly the rules we are playing to have at least been modified.

I also pay attention to language.  “Transition period” is a term used by the EU.  “Implementation period” may well be the same thing, but changing its name means it is part of Brexit.  We now know that eventually the EU is to leave the Single Market and the Customs Union, but we have heard previously that what replaces them will also be very similar, but will have different name.  And that may also be true of the name of the governing court or courts.  So maybe we’re on the threshold of the UK moving away from the EU political and Economic Union, but staying in a newly named free trade zone which includes the EU member states and other nations such as Switzerland and Norway.  It might look quite similar to what we currently have, but without the UK having any direct political and economic say within the EU.  It may mean that.  It could of course just be political posturing, which is not good for business.
In the meantime, assuming that a deal can be done for an implementation period, I do have some VAT and Duty questions, which some may say are silly.  However, those of us long in tooth know that silly questions sometimes get silly answers:

  1. Are we still leaving the EU at the end of March 2019?  We’ve indicated we will probably be staying in the Single Market and the Customs Union, but they are not the same as the EU.  Leaving the EU means losing political and economic decision-making power, but still having to abide by any new rules brought in place regarding the Single Market and the Customs Union amongst other things.  Leaving the EU may mean losing some of the benefits and rights of EU membership.
  2. Will UK firms be able to trade freely with the remaining member states and vice versa?  Will the non-discrimination laws continue to apply?  Will a UK company doing business in Germany still be treated the same as a German company trading in the UK, and vice versa?
  3. Will all the current VAT simplifications for intra community trade continue to apply?
  4. Will we still have European Sales Lists?
  5. Will VAT fraud information still be shared with member states, and vice versa?
  6. Will we continue to complete intrastat returns?  Will they continue on the same basis or do we fear greater reporting obligations against smaller thresholds for example?

I’d like to assume that the answers to all those questions and more will be that we continue as we are after the end of March 2019.  However, you can see why I’m asking.
So following Florence, the Brexit Magic Roundabout will continue to turn.  Florence will still look to lead whilst she seeks to find her way.  Presumably Mr Davis will crank Mr Rusty’s organ. The whole lot will continue to take what Dylan does, man, whilst the process continues to move at Brian’s pace.  As for Dougal, he seems to have dropped out of sight with Ermintrude after that article she wrote in the Telegraph a little while ago.
For my French friends, please feel free to substitute your own names, bearing in mind that the UK version had a different storyline to the pictures which you produced.  Plus ca change!
Time for bed said Zebedee.

Brexit – What about the people?

I asked  a colleague of mine, Melissa Dunkley, a simple (possibly stupid) question as to the impact of Brexit on the area of tax in which she specialises.  My ignorance was laid bare and a series of articles is the result.  This is the first.
Melissa’s company, MD Advisory Limited, is a specialist tax adviser, dealing with the tax and social security position for expatriates.  She advises on both UK nationals going overseas and foreign nationals coming into the UK.  Email her at:
I hope you find what Melissa has to say as interesting as I do.  Below is her first article in the series.

There has been considerable commentary about the impact of Brexit on VAT, customs duty and the single market.  There have also been quite a few questions about the freedom of movement of UK and EU citizens and what this might mean in terms of labour market access and retirees needing healthcare in Spain. However, little has been said so far about the impact on personal income tax and social security contributions for workers, because most speakers on the topic of Brexit openly admit to knowing nothing about the subject.  So, it is time to start putting that right.

This will be the first in a series of articles on the issues for EU citizens working in the UK and UK citizens working in the EU.
Let’s start the series with the easy one, personal income tax.  Whether an employee pays tax in the UK or another EU country has nothing to do with EU law.  The liability to tax is governed firstly by the domestic income tax laws of the countries concerned. Then, if there is any area where more than one country is trying to tax the same income, the double tax treaty is used to solve the problem, either by preventing one country from taxing the income at all or limiting the tax it can charge and by ensuring foreign tax credits are given by the other country.

Double tax treaties are agreements between two individual countries, not groups of countries. Double tax treaties are not exclusively something between EU member countries, they are a global phenomenon. The UK has one of the most extensive set of treaties of any country and there are treaties between the UK and each one of the other EU countries.  So, leaving the EU will not change the personal income tax position of a UK employee working in another EU country, nor of an EU employee working in the UK.

Having said that, there is one area, which I think will be at risk and that is personal allowances.  Currently all UK tax residents are entitled to the annual personal tax-free allowance of £11,500. A person can have £11,500 of earnings before they pay any personal income tax. This is unlikely to change. However, what could be on the cards in the future is the availability of the personal allowance for non-residents.

Personal allowances are given not just to UK tax residents, but also to certain persons of the right nationality, even if they are not resident in the UK. In case you’ve never realised, the UK tax system is an openly racist one. Pre-6 April 2010, the “right” nationality included British citizens, Commonwealth citizens and EU/EEA citizens. So, a UK national working abroad with a small amount of income back in the UK, say from renting out their UK home while they were away, does not pay any UK tax provided the income is less than the personal allowance. It relieves a lot of unnecessary filing of self-assessment tax returns for individuals and it saves HMRC money since the cost of collecting the tax would exceed the amount of tax collected. From 6 April 2010, Commonwealth citizens were taken off the list of accepted nationalities. EU and EEA citizens couldn’t be taken off the list too as under EU law, citizens of other EU and EEA countries cannot be treated differently from British citizens.  So, Brexit could afford the UK another chance to make this change.

It might seem like a small issue but there are a great many EU citizens who are resident in their home country but who work occasionally in the UK and who are liable to UK tax when they do. Many, however, do not pay UK tax because the small percentage of their salary, which is liable to UK tax, is less than the annual allowance. This saves their employers, HMRC and tax advisers from a considerable admin burden of operating PAYE and then having to correct the tax paid later by simply taking them out of the UK tax system altogether.  It’s just one more thing that is going to make the UK a less attractive place to do business.

So, in summary, Brexit won’t change the personal income tax rules, but it could give the UK Government a chance to get some more tax out of EU workers, but at what cost?

UK Tax Representatives – the current VAT regime

If you’re a Non Established Taxable Person making taxable supplies in the UK, you may be required to appoint a tax representative.


A Non-Established Taxable Person (NETP) is any person who isn’t normally resident in the UK, doesn’t have a UK establishment and, in the case of a company, isn’t incorporated in the UK.

UK Establishment

A UK establishment exists if either:

  • The place where essential management decisions are made and the business’s central administration is carried out is in the UK
  • The business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK

HMRC would normally consider a company which is incorporated in the UK to have an establishment in the UK as long as it’s able to receive business supplies at its registered office.
But clearly only an NETP making taxable supplies in the UK is required to obtain a UK VAT ID, and we are happy to provide advice on this.

Tax Representative

A tax representative:

  • must keep your VAT records and accounts and account for UK VAT on your behalf
  • is jointly and severally liable for any VAT debts you incur

You may only appoint one person at a time to act on your behalf, although a tax representative may act for more than one principal at any time.

For each principal a tax representative represents, they must:

  • keep separate VAT accounts
  • make separate VAT returns

Tax representatives – what you must do if you appoint one

When you register for VAT online, you will be asked for information about your tax representative. You’ll need to give your representative enough information to allow them to:

  • keep a VAT account
  • make returns
  • pay VAT

on your behalf.

When HMRC can make you appoint a tax representative

HMRC can direct some NETPs to appoint a tax representative who:

  • must be based in the UK
  • must be fit and proper

HMRC can’t direct NETPs who are established in other EU member states, or who are based in countries where certain mutual assistance arrangements exist. However, that is likely to change following Brexit, especially if the UK Government continues to seek to leave both the Single Market and the Customs Union at the end of March 2019. We await more clarity on this point – indeed, we await more clarity on Brexit per se!

What makes a tax representative fit and proper?

A tax representative must meet or exceed a particular level of suitability, compliance and integrity in how they conduct, or appear likely to conduct, their tax affairs with HMRC.
In determining whether a particular individual is a fit and proper person to act as a VAT representative for an NETP, HMRC will use the following criteria.

A person may not be accepted if they:

  • have been disqualified as a Director under Company Law
  • are or have been involved in crime and or have relevant criminal convictions
  • have had previous requests for a similar role in VAT or any other tax or duty regime revoked or refused
  • have personally received penalties for deliberate wrongdoing
  • have any connection with the business they wish to represent, or with key persons involved in that business, or with any non-compliant or fraudulent businesses

Where HMRC becomes aware of information that suggests a person may not be a fit and proper person, HMRC may refuse to register them as a tax representative.
Covertax Chartered Tax Advisers, and their sister companies, Scott Botham Chartered Tax Advisers and RyTax are all fit and proper under these rules, and we intend to stay that way!

What if the tax representative I have appointed is not fit and proper?

Where HMRC has reason to believe that a tax representative may not be fit and proper, HMRC may cancel their registration as a tax representative.
If HMRC has directed you to appoint a tax representative, you’ll need to appoint a new representative who is fit and proper.

When you can appoint an agent instead of a tax representative

Covertax Chartered Tax Advisers and our sister company Scott Botham Chartered Tax Advisers already act as UK VAT Agent for many businesses.

As long as HMRC has not directed you to appoint a tax representative, you can appoint an agent to deal with your UK VAT affairs. Any arrangement you make will be subject to whatever contractual agreement you and your agent decide. We can’t hold your agent responsible for any of your VAT debts. We reserve the right not to deal with any particular agent you may choose to appoint. In some circumstances, if we think it’s necessary, we may still insist that you appoint a tax representative. We have a standard form of words which HMRC finds acceptable for our appointment as UK VAT Agent.

As with the appointment of tax representatives:

  • you may only appoint one person at a time to act as your agent (although an agent may act for more than one principal – which, of course, we do)
  • you must still fill in the appropriate form to apply for registration
  • we’ll need your authority before we can deal with your agent – in the case of agents, the authority should be in a letter. We hold a suitable draft. Please note despite the legal status of this authority, HMRC in practice still requires the agent to hold a 64-8 agent authority as well.
  • you’ll need to give us enough information to allow us to keep your VAT account, make your returns and pay VAT on your behalf. We have a standard data capture form which we currently use, and it also captures the information we need for ESL and Intrastat. With the advent of Making Tax Digital (“MTD”) we are sourcing an online accounting package to meet those new requirements


There is no doubt that these important changes have passed many people by.
With Brexit we expect there will be more issues, although right now all we can do is to plan for the worst and hope for the best.

In theory all of our EU VAT return clients will need to appoint a UK tax representative and we will offer that opportunity to them. Similarly other EU businesses may well find that they have new responsibilities to register for VAT in the UK, following the removal of Single Market VAT simplifications and we are here to help with those needs.

If you have any queries, please email

Brexit and references to the CJEU

In a week where we are promised a position paper from the UK Government on the role of the Court of Justice following Brexit, I thought that the attached excellent technical article by Peter Mason (which some CIOT members will have seen) is worth an airing.  Peter identifies some issues which need to be resolved.

Please remember that a “Position Paper” has no force of law, does not represent anything which is agreed between the UK and the rest of the EU, and in reality is little more than a political wish list.

Peter is a Barrister, Chartered Certified Accountant and Chartered Tax Adviser at Cuckmere Chambers. He specialises in optimising the VAT position for businesses, especially in the finance, funds and insurance sectors, as well as for other businesses and non-profit organisations.

He is member of the CIOT indirect tax committee and was on the EU VAT Expert Group. He seeks at all times to work collaboratively with HMRC but where it is not possible to reach agreement on a matter, then he can take a case forward on appeal.
Peter can be contacted at Chambers on +44 (0) 203 858 0043.

UK Provisions

Paragraph 2.3 of the White Paper on the UK’s Exit and New Partnership with the bEU, CM 9417, of 17 January 2017, updated 15 May 2017, states that “We will bring an end to the jurisdiction of the CJEU in the UK. We will of course continue to honor our international commitments and follow international law.”

But how will this work for disputes in progress? Where taxpayers currently pay, and have paid tax, under the EU legal order as transposed into UK law under ECA 1972, they surely have a right to challenge the provision, including a request for a court to make a preliminary reference from the CJEU under article 267 TfEU.

Given it can take one or two years to get to the Tribunal and limitation periods go back four years in VAT (or longer for fraud, up to 20 years) will the courts make a reference and will the CJEU hear it for years to come? There is no guarantee the Court of first instance will refer, and so an appellate process could continue for say four or five years, to the Supreme Court. Are they then prohibited from referring?

Hamlet’s problem, the law’s delay means that cases may not get to the Tribunal, or on appeal, until years after we have left the EU. Does this mean that all currently acquired EU rights are lost?

I have to declare an interest, in that I have current case which in my view, would benefit from a reference. The VAT liability of transactions that have taken place whilst the UK is within the UK being challenged, and the right to request a court for interpretation of a provision of EU law under article 276 TEU, if the court determines that it is necessary, seems to have characteristics of an acquired right that could not simply be replicated in domestic law.

EU Provisions

Importantly, articles 19.1 and 3 TEU state:

Article 19
1. The Court of Justice of the European Union shall include the Court of Justice, the General Court and specialised courts. It shall ensure that in the interpretation and application of the Treaties the law is observed. Member States shall provide remedies sufficient to ensure effective legal protection in the fields covered by Union law.
3. The Court of Justice of the European Union shall, in accordance with the Treaties:
(a) rule on actions brought by a Member State, an institution or a natural or legal person;
(b) give preliminary rulings, at the request of courts or tribunals of the Member States, on the interpretation of Union law or the validity of acts adopted by the institutions;
(c) rule in other cases provided for in the Treaties.

Rule 19 of the Cconsolidated version of Protocol (No 3) on the Statute of the Court of Justice of the European Union states:

Only a lawyer authorised to practise before a court of a Member State or of another State which is a party to the Agreement on the European Economic Area may represent or assist a party before the Court.

These Rules may benefit from further clarification in the light of Brexit. First article 19(3)(a) TEU, which is directly applicable and has direct effect, confers competence to the CJEU in respect of actions brought by a “legal person”. This is not qualified in any way and reads disjunctively in my view with articles 19(3)(b) and (c).

However, representation seems to require that it be made by a lawyer authorised to practise before a court of a Member State. Does this mean that references can continue but that we will need a colleague from another Member State to represent us? That seems do-able in theory.

As regards article 50 TEU, this states:

Article 50 – Treaty on European Union (TEU)
1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union…….
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2…….

Interestingly, in a European Parliament Briefing, of February 2016, commenting on article 50, stated:

… a withdrawal agreement could contain provisions on the transitional application of EU rules, in particular with regard to rights deriving from EU citizenship and to other rights deriving from EU law, which would otherwise extinguish with the withdrawal.


For a UK taxpayer, I cannot see how in respect of legal events that took place  whilst ECA 1972 incorporated the EU Treaties into domestic law, article 19.3(a) acts in any way to prevent a person who commences a legal action, whether during or after the UK’s membership of the EU, from asking the UK court, if it considers it necessary, to refer a question to the CJEU. This is for the following reasons. First, article 50 TEU is clear that the Treaties cease to apply from two alternative dates, the date of withdrawal agreement or two years after the article 50 notification.

In domestic law, s.16 Interpretation Act 1978 says that the law of today applies to events of today, unless Parliament takes the provision away with retroactive effect.
Therefore, unless there is such an amendment of Treaty obligations with retroactive effect, these should continue to apply up to the leave date. This is confirmed by Article 6 of the 1969 Vienna Convention on the Law of Treaties, which states: “Pacta sunt servanda”: Every treaty in force is binding upon the parties to it and must be performed by them in good faith.

Absence any other transitional arrangements, in my view courts and tribunals seem to be able, for years to come, to make a reference to the CJEU, in respect of legal events that took place up the leave date. This is particularly applicable in the case of a so called “hard Brexit”, where no transitional arrangements have been agreed.

This interpretation is supported by not only the important cases cited in Miller [2017] UKSC 5. Including the Case of Proclamations 1608 and Bill of Rights 1688, but also the leading Privy Council case of Madzimbamuto v Lardner-Burke [5] [1969]1 AC 645. In that case, detention of a subject in Southern Rhodesia under the illegal Ian Smith regime which had usurped power, was held to be unlawful.

The majority opinion stated:

“But the fact that the judges among others have been put in a very difficult position cannot justify disregard of legislation passed or authorised by the United Kingdom Parliament”

I would echo the Privy Council, in particular in the light of Miller. This tells us that rights conferred to a person by Parliament can only be removed by Parliament.

As Parliament has conferred competence to interpret EU law to the CJEU, until that competencies brought home, it must surely reside in Luxembourg, in the same as the legal power to detain Mr Madzimbamuto at that time, resided in the UK, and not with the usurpers of power in his homeland.

I have never understood why those arguing for Brexit and the supremacy of Parliament tried to resist this approach, particularly as the Referendum Act 2015 made no provision for the outcome to be legally binding. The sovereign Parliament’s intention, in enacting the ECA 1972, included the conferring of EU law rights on persons, and accordingly these can only be taken away prospectively in my view, by Parliament itself, unless international agreements, again approved by Parliament in this case (because the rights affect UK law, per Miller) so provide.

What the CJEU does with a reference that a UK court may decide to make after we have left the EU, in the absence of any withdrawal agreement, is however another matter! I would have thought that the CJEU, in calling itself a court of justice, would be minded to hear a case, but it does not write its own rules and the matter is of course very political.

It is to be hoped that as matters proceed, a working arrangement can be agreed. Some countries have very short limitation periods such as the Netherlands, and may not see this as an issue, so it may be important to raise the point as a potential issue at this stage.

Peter Mason

Brexit and Future Customs Arrangements

Thank you to Barbara Scott from Customs Associates for sharing this article with us.

While we all welcome the paper on Future Customs Arrangements which, finally, tells us something about the Government’s thinking on how we might trade with EU member states once we have left the European Union, there are some major concerns and plenty of unanswered questions about the potential solutions. Many of these have been covered in the press recently but here are my own thoughts.

A highly streamlined customs arrangement between the UK and the EU is, of course, a must for trade to continue to flow unhindered between us and the mainland but, of course, more importantly, between Eire and Northern Ireland. It is that latter arrangement that is going to drive the processes for the rest of UK/EU trade. IT solutions, based on vehicle number plate recognition or supply chain information supplied by sender/recipient to customs authorities can be developed over time and should be available for trade with all countries not just the EU.

But, even if there is the political will and finance available to do this, it will take many years of planning and implementation. It is the interim solution that we need to be working on now and, hopefully, that will be the main thrust of discussions in Brussels once the two sides get talking on how the future might look. However, the paper does not give any indication of how long this time-limited interim period might be and that is a worry when we speak about EU systems – an interim solution often becomes the final solution when there are difficult political or financial decisions to be made. And there are some very difficult decisions for the EU to make.

No matter what the UK Government wishes, the other member states and the Commission must agree on their position on trade with the UK. They are unlikely to want to develop “new innovative facilitations” for trade with the UK, especially when they are still introducing all the new requirements of the Union Customs Code which will continue to be implemented through to 2020 at least. Interestingly, it is listed as one of the UK’s priorities to negotiate an outcome with the objective of ensuring continuity, where possible, with current rules and processes that align with the Union Customs Code. Yet, while the backbone of processes should remain as presently operated, I certainly hope that there will be a number of changes we will make, not least the reintroduction of a duty drawback system for the recovery of duty on goods imported and subsequently re-exported.

But it is the second option for a new customs partnership with the EU that intrigues me. Having a two stream system for imports into the UK depending on whether the “final” destination of the goods is the EU or somewhere else is a model that has not, as far as I am aware, been considered by any customs administration before. The paper states that this would be challenging to implement with the UK mirroring the EU requirements for imports going into the EU and having our own requirements for goods coming into the UK. Would this mean that a UK company buying a shipment of goods from the US will have to determine, at import, which of those goods are to be used in the UK and which are to be used in the EU – with different customs rules (duty rates, origin rules, etc) being applied? I can only see that working if the UK was some large customs warehouse or Freeport. However, the paper talks about the tracking of goods along supply chains and robust enforcement mechanisms (oh dear).

I am looking forward to discussing these ideas with HMRC. Finally, there are some nice snippets in the paper about customs compliance and facilitation measures that the Government will look to introduce for UK importers generally. These include a system of self-assessment to enable traders to calculate their own duties and aggregate their customs declarations, which will split the security/safety and the fiscal responsibilities of importing; this is something that many UK businesses have been wanting for many years but which has been held up while an EU wide system is agreed.

The paper also mentions making simplified procedures easier for traders to access and speeding up authorisations for duty relief systems; both of which will be simple to accommodate provided there is investment in our UK customs administration – the current poor levels of service are nothing to do with our membership of the EU/ the constraints of the Union Customs Code.

Barbara Scott