The EU referendum
This is it, we’re on the home straight towards arguably the most important vote in our lifetime and one that will impact this and future generations. But the issues which determine whether to Brexit or Bremain are still being hotly debated across the UK.
So much of the spin doing the rounds offers contradictory messaging. Read a leaflet from the Brexit campaign and you’ll receive one version of the facts – leaving the EU will give us a stronger economy, stronger leadership on the world stage, make for a safer nation and more money in everyone’s pockets. Read a similar leaflet from the Bremain camp and you’ll get exactly the same interpretation of the outcome based on the opposite stance of remaining where we are. To be expected really.
We’re not here to tell you how to vote in the EU referendum. There is no right or wrong way because how you vote will depend entirely on your individual perspectives and priorities. Instead, we want to give you some contractor food for thought to help you decide how to use your vote on 23 June.
The truth is no one can be sure what a Brexited Britain would look like financially, fiscally or economically, but undoubtedly a period of volatility or, more likely, instability would ensue.
How long that may last is the same as the length of a piece of string or the time some poor agencies take to pay contractor’s invoices – who knows?
If we do vote leave, there is little doubt that UK contractors and freelancers will be affected. Whether this turns out to be a good thing or a bad thing for you will depend on so many factors, especially those which affect your clients and their business. Also relevant are the demand for your skills and the ability to source those same skills elsewhere, your age, financial situation, nationality, domicile, the industry you work in, and which European territory you expect to work in (including the UK).
Here we explore issues we think contractors will be most interested in.
Tax consequences of Brexit
A decision to leave the EU on 23 June will not change the UK tax system overnight. In fact it is unlikely anything would change until a framework for exit had been negotiated with the EU. The UK would have two years for that to happen (and longer if all member states agree). However, although there would be no overnight changes the UK government would want to set out its roadmap for change fairly quickly and we could expect an emergency Budget soon after an exit decision.
An emergency Budget may have some changes to taxation or accelerate changes anticipated, but the focus is more likely to be on the roadmap alone.
An exit decision will have no immediate effect on existing trade with the EU or agreements to which the UK is itself a signatory. But if the exit formally occurs the UK will lose the benefit of existing trade agreements with countries agreed at EU level and of course the agreements itself with EU member states. However, the UK is a member of the World Trade Organisation (WTO) in its own right and would retain the limited benefits that “most favoured nation” terms provide and its obligations as a member of the G20 and OECD would remain.
The UK would need to consider those non EU countries where trade agreements only exist from EU membership with terms to be negotiated, but as far as agreements with the EU are concerned the UK has the choice of joining the European Economic Area (EEA), the European Free Trade Association (EFTA) or negotiating its own bilateral agreements.
In the absence of membership of the EU, EEA or EFTA the UK would need to establish custom tariffs with all member states and those countries where agreement was reached at EU level. But the UK would be free to enter into negotiations with any non EU country for the benefit of the UK alone; without consideration of wider EU consequences. Arguably an easier task for the UK than reaching agreement with non EU countries at an EU level. The US is a perfect example.
Whatever course the UK takes, it would take many years to complete and it is possible that two years would not be long enough to have all the ducks in a row. This is the key concern over trade stability, the period of time these agreements take to negotiate and what those terms will ultimately be.
If the UK were to exit from the EU, whether or not it goes it alone, or joins either the EEA or EFTA, it would have total sovereignty over the UK tax system which would make it free to make changes over VAT and Corporation Tax. Some would say that from a trading perspective this would enable the UK to move forward in more dynamic ways specific to the circumstances that suited the UK and maximise its competitiveness on a global stage.
Working in the UK and overseas
The contracting market has been attractive to overseas workers from the start, both from within the EU and outside, particularly Asia, New Zealand and Australia. We are used to economic migration and arguably this has never been a problem. More importantly and historically immigration has always been associated with periods of increased economic prosperity. That still remains the case as agreed by both camps.
However, the Brexit camp stress the real problem is caused by an inability to control the volume and speed of immigration together with the skill sets of the migrants required in the workforce.
Contractors working abroad are highly likely to be affected and should be concerned with the weakening value of the pound against the Euro. If you live in the UK, have property here and regard it as your “home” you are likely to be sterling functional. That means it’s your main currency even if it’s not the one you are currently paid in.
Sterling exchange rates are determined by other factors too and the possible downside of a Brexit on the pound is already reflected in the exchange rate. The comforting reality is that on a commercial level skills follow demand whether that’s in the UK, EU or the rest of the world. We are a flexible and mobile workforce and if your skills make you a valuable knowledge worker sought out for key skills and expertise then the forces of supply and demand will work in your favour.
There can be no economic certainty until after the vote on the 23 June. No one really knows how the vote will go or what will happen afterwards. What is currently happening is that “exit poll predictions” are being made to stay or go on a daily basis and the “breaking news” affects the financial markets. This week the Brexit team have gained ground making exit seem closer. As a consequence the pound has fallen and share markets remain very volatile. How the non EU world reacts is largely already reflected in the stock markets and both Sterling and Euro exchange rates are bouncing this way and that. Most of the FTSE 100 (the Uk’s biggest public companies) enjoy global revenues so are protected against these “local” shifts. It’s not all doom and gloom for UK contractors.
What is definitely the case is the lead up to the vote has affected the contracting market as many companies are adopting a wait and see approach to decision making, which should come to a quick end after 23 June.
So, are contractors likely to be better or worse off in a UK outside of the EU? Or will it take a couple of years before any difference can be measured? The eventual outcome cannot be treated lightly as it will affect this and future generations. It is perhaps the most important decision many of us will ever take. Contractors and freelancers are known for their maverick spirits and a willingness to not take the easy path. Consider as much of the information you can digest and then allow your head and your heart to guide you. The UK, the EU and the world all need talented people no matter which club they might belong to.
Intouch believe the UK contracting market is strong, flexible and mobile and fully support the needs of contractors from both the UK and the rest of the world. We don’t believe we should have an opinion on what is best for the individual. That’s a decision for each to take on their own. But whatever happens we will continue to monitor how markets, trade, financial matters and taxation are affected and guide our clients accordingly.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.