Background of the study

As per the current situations, the consequences of Brexit plebiscite, in which the United Kingdom has decided to leave European Union, potentially has a significant financial impact for the country, specifically on the UK taxation system. On the other hand, this is only the starting point, as the United Kingdom will not really leave the EU for at lest for another two years, so whilst there is presently a period of uncertainty for organizations, there is also time for this country to kick off important actions (Dahrendorf, 2017). This research proposal will seek to find out the exact implications and influence of Brexit on the UK tax policies and overall economy with involving field analysis as well as investigating from the previous researches done on the same area.

It has been noticed that nearly 2 years after United  Kingdom voted to eliminate itself from the EU, it is still not entirely clear what will be the exact influence of Brexit on this country, particularly as all are waiting for the results of the negotiations between European Union and Government of UK (Belke and Ptok, 2018). On the other hand, it could be seen that there will be a huge uncertainty regarding the country corporation tax rate that will be going down to around 17%.  This is difficult to confront that how the country could afford it. In case of targeted tax reliefs, there will be modifications in the way international technology leaders are taxed (Olbert and Spengel, 2017). One of the major issues is Customs duty and Vat regulations are the one most influenced by the Brexit. All these things will are important while studying for the overall implications of Brexit on the economy of UK.

The main concern here is the changes and negative implications of Brexit on the Tax rates and policies of United Kingdom and how these changes will impact on the individual as well as country’s income. Besides the influence on trading, this type of long-term impact of withdrawal is likely to be on parts like UK tax policies, FDI, contribution to the European Union budget and the impact of immigration on the labour market (Dhingra et al., 2017). These changes will affect on the individual as well as country’s income by either minimizing the tax rates or changing all the polices altogether. On the other hand, currently, it has been seen that Brexit related decisions will negatively impact on the Foreign direct investment attractiveness for the country along with reducing the capital inflows, financial development and citizen welfare.  Investigation and research on this area will help in finding out exact influence of this treaty on taxation policy and foreign direct investment related laws, thus developing scope for further research in future.

The primary aim of the research is to identify the importance of Brexit rules for the taxation policies available in the United Kingdom.

Objectives of the research are listed below;

• To identify the impact of Brexit on tax harmonization and tax Competition
• To recognize the direct and indirect tax implications after Brexit in the United Kingdom
• To measure overall affect of Brexit on UK taxation policy

Research questions are discussed below;

• What could be the changes in tax harmonization and tax Competition after Brexit in UK?
• What are the direct and indirect tax implications after Brexit in the United Kingdom
• How overall UK tax policies will change or modify after Brexit?

As it has been underlined in  the above part of this proposal,  present Brexit conditions are not projecting any good for the Taxation  policies of UK. From several perspectives it has been identified that there will be surely a change in  the provisions and laws of corporate and other categories of tax prevalent in the United Kingdom, which will impact on the income sources for the country (Ebell, Hurst and Warren, 2016).

Research Rationale

Hypothesis 1:  Brexit will be affecting the country corporation tax rate by lowering it around 17% in the upcoming year.

Hypothesis 2:  The policy changes could change the direct and indirect tax provisions.

According to Khan, Khwaja and Olken.(2015), Brexit has developed the macro-financial risks facing the economy. The leading earners, on whose taxes the “Treasury relies”, will face minimized wage development, other taxpayers will get to pay more. On the other hand, the United Kingdom government would not be capable of relying on borrowing. All these reasons will assuredly effect on the economic growth. On the other hand, recent survey on this area has identified the  fact that UK macro-financial policies was likely to be subjugated by financial and political uncertainties, developing inflation rates, falling investments, increasing debts and the spectre of increased taxation, even before the nation has decided to vote for leaving EU. Overall, the financial outlook is not at all promising, whether UK makes an effective exit with smooth transitions. Brexit conditions would have a vast and continuing impact on the United Kingdom economy as well as Taxation policies. According to Kara et al. (2017), if Brexit leads to fierce contraction in the UK economy, government will compel to apply tax policy to safeguard the country budget and jobs.

On the other hand, Benczur, Katay and Kiss (2017)  have described that leaving the European Union will provide UK opportunity to sustain present structure of the tax, to modify it, or to change it altogether that is with a tax consumption or sales tax. This is highly questionable that the government of UK will ensure change to the present structure as well as levels of VAT. It is possible that, government will want to protect revenues it achieves from the tax, approximately, £115bn in 2015/16 (Baker, Bloom and Davis, 2016). On the flip side, according to the Spring Budget, the chancellor restated government’s decision to minimize rate of corporation around  17% by 2020, the lowest in the G20 in order to develop UK’s competitiveness (Johnson,  2014).

According to Lea (2018), Brexit will definitely influence on tax competition and tax harmonization in the United Kingdom. Debate regarding this issue has developed two widespread predictions. As per the observations of Whyman and Petrescu (2017), the first predictions is that the country may become a larger tax haven in the immediate region of the European Union that tries to decoy investment and jobs away from other enamouring countries by providing them low tax rates. The second prediction according to Fuest and Sultan (2018), once the United Kingdom will leave the EU treaty, the remaining members will finally take decisions toward more tax harmonization. The main concern with the first prediction is that there is recently nothing that constraints UK from cutting taxes to attract investments, surely not European Union membership. On the other hand, there is no nominal corporate income tax rates in the EU. In fact, the United Kingdom has applied this policy extensively. It has constantly reduced its tax rates in current years and recently has a much minimize rate than comparable countries such as Germany, Italy, France and others. Additionally, Brexit will not only just free the United Kingdom from all the restrictions, it will also can be most likely develop trade costs among UK an d rest of the European Union (Fuest and Sultan, 2018). It will have an influence on location decisions, tax discrimination, corporate taxes competition in this country.

Aim and objectives

Bachtler and Begg (2017) have focused the fact that European Union followes customs Union methods that means goods and services can be transferred between countries without paying extra tax.It follows open economy methods for better trade and less complexity between the countries.Until and Unless the United Kingdomgoes further to have a negotiation process that makesthetrade agreement with the European Unionand United Kingdom, theywill have an impact on the import and export of goods and service on all fronts mostly on value added tax (home.kpmg.com, 2018). It will highly impact on the export methods as because it will be highly costly due the Brext. Bachtler and Begg (2017) have identified that businesses on the basis of UK importing from the outside the nation and then selling on to the consumers in the European Union will require to take into account important extra duty charges. Ramifications would also develop beyond the EU as well, since European Union has negotiated effective trading terms with other nations and businesses might require to review their supply chains. On the other hand, as VAT is a significant EU tax, the UK VAT rules have had to fall in line with the “EU Principal VAT Directive” (home.kpmg.com, 2018).

It can be stated from previous studies that direct taxes in the UK are enforced by United Kingdoms’ regulations and like, most of country’s taxes systems will remain unchanged following the new circumstances. It provides an ease of doing business within the country. The United Kingdom’s direct taxation policies should however obey with the European Union laws as the four freedoms, that are, “the zero transport of services, capital, goods and people” (home.kpmg.com, 2018). However, After theBrexit, some of the UK tax laws and regulation may not or mayno longer be needed to direct by some European Union laws and some EU regulations must no longer imply to the United Kingdoms’organizations. Legal rules such as the European Union Parent Subsidiary Directive that offers relief from suppression of taxes on divided payments organized among associated organizations in various EU countries and offers double taxation relief to main organizations on profits of secondary companies, will no longer be there. Thus, United Kingdom required to rely on policiesof double taxationsso that beneficiary can be gained from preferential suppression tax rates (home.kpmg.com, 2018). There are many double taxation rates and policies in place with the United Kingdom, it might be the case that full relief  is not accessible in some countries or cases.

According to Kumar and Phrommathed (2005), research methodology could be represented as consideration of systematic as well as theoretical evaluation of a research process. Research methodology involves concepts such as theoretical models, quantitative, quantitative, phrases and others. Marczyk, DeMatteo and Festinger (2005), have described that while discussing about this particular research, it should be outlined that positivism philosophy, deductive approach as well as descriptive research design will be chosen here. On the other hand, as per the requirement of research objective, aim and questions, primary data collection process will be selected. These methodological concepts and theories will help the researcher to achieve an authentic result from the entire study related to Brexit and its impact on UK tax policies.

Research questions

This is proven that choosing a particular research philosophy suggests the way by which relevant data and information could be collected. However, there are three main types of research philosophy available as realism, positivism and interpretivism. Among the three types, Positivism research  philosophy will be selected and implemented in this study  (Taylor, Bogdan and DeVault, 2015). This research philosophy will help in collecting necessary data through historical sources and existing information upon the said topic.

Flick (2015) has stated that there are two main types of research approaches available named deductive and inductive research approach. Deductive research approach commences with the present theories from which all the possible hypothesis could be drawn. The next stage in this approach is observation. On the other hand, inductive research approach underlines about the starting with the observation, completely opposite from the deductive research approach. In this study, deductive research approach will be selected as it will help the researcher to find out effective results based on the previous research works on the same area.

As per the observation and investigation of Mackey and Gass (2015), there are three types of research designs available such as explanatory, exploratory and descriptive research design. The descriptive research design will be chosen here as it will in analysing existing research facts and data in detail. Descriptive research design will also help in achieving information and data from the large sample involve in the research study.

For analysing the Brexit conditions and its future implication on the economy of United Kingdom, there are various internal and external research strategies are available. From these strategies the researcher will select PESTLE analysis to understand the external market situation and the overall condition of Taxation policies in the country (Mackey and Gass, 2015). This theoretical analysis will help in understanding influence of Brexit on the economic landscape of UK along with political, social, technological, legal and other changes due to this.

According to Silverman (2016), research data can be gathered by applying two different types of data collection process. One is the secondary data collection process and the other is primary data collection process. The primary data collection process will be implemented here for achieving evidences of change in due to Brexit on the taxes available in UK. the primary data collection process will be applied through qualitative and quantitative data collection process.

For the survey method 50 candidates will be selected by the researcher and for the interview three mangers will be selected. From the results of survey and interview process, impact of Brexit on UK tax policies could be understood effectively. For identifying the sample size probability sampling method will be applied.

In this study, both the qualitative and quantitative data collection processes will be applied for extracting data.  The quantitative data collection process will involve survey of selected respondents and the qualitative process will involve interviews of managers from banks and other institutions (Silverman, 2016).

In this research while doing field analysis, all the ethical norms will be followed. The researcher will obey the data protection act regarding protection of the personal information of the respondents. All the collected information will be authentically presented for the research only and will not be published for any other purposes (Walliman, 2017).

The researcher may face limitations while implementing the data collection method along with time management could be wrong for the interview and other data collection methods (Walliman, 2017). On the other hand, financial requirements may be appeared as one of the research limitations in this case.

                                                         

                                                                                (Source: Created by the learner)

Reference list

Bachtler, J. and Begg, I., 2017. Cohesion policy after Brexit: the economic, social and institutional challenges. Journal of Social Policy, 46(4), pp.745-763.

Baker, S.R., Bloom, N. and Davis, S.J., 2016. Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), pp.1593-1636.

Belke, A. and Ptok, S., 2018. British-European Trade Relations and Brexit: An Empirical Analysis of the Impact of Economic and Financial Uncertainty on Exports. International Journal of Financial Studies, 6(3), p.73.

Dahrendorf, R., 2017. Reflections on the Revolution in Europe. Routledge.

Dhingra, S., Huang, H., Ottaviano, G., Paulo Pessoa, J., Sampson, T. and Van Reenen, J., 2017. The costs and benefits of leaving the EU: trade effects. Economic Policy, 32(92), pp.651-705.

Ebell, M., Hurst, I. and Warren, J., 2016. Modelling the long-run economic impact of leaving the European Union. Economic Modelling, 59, pp.196-209.

Flick, U., 2015. Introducing research methodology: A beginner’s guide to doing a research project. Sage.

Fuest, C. and Sultan, S., 2018. How Will Brexit Affect Tax Competition and Tax Harmonization? The Role of Discriminatory Taxation. IFO Working Paper Series 248,  IFO Institute – Leibniz Institute for Economic Research at the University of Munich.

Johnson, P., 2014. Tax without design: recent developments in UK tax policy. Fiscal Studies, 35(3), pp.243-273.

Kara, A., Hantzsche, A., Lennard, J., Lenoel, C., Piggott, R., Thamotheram, C., Young, G., Bell, D., Blanchflower, D., Bunn, P. and Rostom, M., 2017. Prospects for the UK Economy. National Institute Economic Review, 242(1), pp.F10-F42.

Khan, A.Q., Khwaja, A.I. and Olken, B.A., 2015. Tax farming redux: Experimental evidence on performance pay for tax collectors. The Quarterly Journal of Economics, 131(1), pp.219-271.

KPMG. (2018). Impact of Brexit on Tax. [online] Available at: https://home.kpmg.com/uk/en/home/insights/2016/09/impact-of-brexit-on-tax.html [Accessed 7 Nov. 2018].

Kumar, S. and Phrommathed, P., 2005. Research methodology (pp. 43-50). Springer US.

Lea, R., 2018. Trading with the EU post-Brexit: the WTO option is perfectly feasible. Arbuthnot Banking Group, 6.

Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.

Marczyk, G., DeMatteo, D. and Festinger, D., 2005. Essentials of research design and methodology. John Wiley & Sons Inc.

Olbert, M. and Spengel, C., 2017. International taxation in the digital economy: challenge accepted. World tax journal, 9(1), pp.3-46.

Silverman, D. ed., 2016. Qualitative research. Sage.

Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons.

Walliman, N., 2017. Research methods: The basics. London: Routledge, Taylor and Francis Group.

Whyman, P.B. and Petrescu, A.I., 2017. The economics of Brexit: A cost-benefit analysis of the UK’s economic relationship with the EU. Springer.