Brexit could cost London billions - The UK Times

As reported by the UK Times, Brexit may have some unintended consequences, with London's Treasury officials being warned that their budgets may be off the mark by large amounts after the Brexit snap next March.

Key quotes

"Treasury officials are understood to have told the chancellor that unless there is a change to the law after Britain leaves the EU, the government could lose £7 billion in corporate VAT receipts. Efforts to claw this back could lead to businesses moving more operations to the Continent, causing greater loss.

City corporate tax returns, which provide at least £7 billion a year, are also expected to fall by about 10 per cent. As part of Brexit contingency plans the vast majority of European-facing banks with headquarters in London are moving some operations to the Continent. One source said that the Treasury was trying to predict how big the losses were likely to be.

Lost VAT income is expected to have an even bigger effect. Under the present regime, when a business supplies goods and services it generally charges VAT and offsets any VAT it has incurred on purchases used to run the business.

In the past ten years the amount made by the Treasury from this “stuck VAT” has passed £7.4 billion and, according to a report by the City of London Corporation, accounts for about a quarter of all tax paid by UK financial institutions. After Brexit these could take advantage of a loophole allowing financial services businesses to claim back domestic VAT for the services they provide to individuals and companies outside the EU.

Treasury officials fear that this will be used to allow big financial institutions to minimise their VAT bill if a transition deal is not agreed or at the point at which it ends. The fear was alluded to in the government’s no-deal contingency planning notices, which stated: “For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed.”

Stuart Adam, a researcher at the Institute for Fiscal Studies, said that without legal changes there would “clearly be a loss of revenue”. A Treasury spokesman said that it kept a “close eye on all possible threats to the UK tax base”. He added: “Our objective is to sustain the economic benefits, for the UK and the EU, that global financial markets provide.” "