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The business community is worrying about a no deal Brexit, but it’s Corbyn who they are absolutely terrified of.

Posted on: 28 Jan, 19

While Theresa May is trying to fix Brexit with a bulldozer, Corbyn is calculating his climatic victory to cause the real catastrophe of capital controls? Oury and Clark consider this tricky dilemma of a worst-case scenario of a no deal Brexit, an anti-business, anti-rich Corbyn government... and what should you do.

Oury says...

So what if…?

What if what?

Clark says...
Oury says...

What if it all goes wrong… ? What if we get a no-deal Brexit, and then we get an election and Corbyn gets in?

Oh you Tory !

Clark says...
Oury says...

To be honest I, indeed we, are, small imaginary characters, so we don’t vote. Our clients are mostly businesses, many with international elements, and we deal, for wrong or for right, with plenty of wealthy foreigners who really like the UK tax system.

Well exactly, maybe it’s time they paid more tax in the UK.

Clark says...
Oury says...

In all honesty, there is not a huge list of things they do like about the UK. It ain’t the weather, or our beaches that’s for sure. Indeed one of the key factors is Heathrow (being able to fly here easily), London (pretty good city), English language (the language of business), access to endless talent (thanks to Europe) and fundamentally it’s a great place to put your company, and that they can come and live here for a few years without all their worldly income and assets being taxed.

What do you mean you don’t need to tax your worldly assets and income?

Clark says...
Oury says...

Well, here is the Corbyn point. Corbyn is looking to make people who earn over £1m publish their tax return and more importantly, to abolish the remittance basis.

What the hell is the remittance basis?

Clark says...
Oury says...

The remittance basis is an unusual tax worldwide, which is really a reflection of the nature of our Island. It’s a place to do business, a nation of shop keepers, an island of traders - and it has this flexible rule that says… if you are not British (technically not a UK domicile), then you can, for the first 7 years you are here, not pay tax on your income or gains made outside of the UK which you do not remit (bring the money into the UK). What this means in practice is if you are someone who is renting out their home, or has some other income or sells a house while they are working in the UK building a business – you don’t have to spend hours worrying about whether it’s taxable in the UK – you can just rely on these rules to protect yourself. It also means the very rich, don’t mind living in London and spending their money here, as they can rely on this to mean they don’t get taxed to hell.

Well that doesn’t seem fair, maybe they should be?

Clark says...
Oury says...

Maybe they should, but the reality is that with so many choices as to where they can live, less of them will come here at all... We are better, I’m afraid, to benefit from some of their money than none. Contrary to popular opinion they aren’t all a bunch of people just sitting on yachts never spending a dime, most have a variety of business interests, and employ people, and spend their money all over their place, and end up with kids who go to university here and they come and live here and hell even end up spending most of the life (and therefore money) here… and until we have a worldwide agreement to tax the super rich, they can simply go live somewhere else if we mess with the balance of this too much.

The balance?

Clark says...
Oury says...

The balance between how nice it is, how high the tax is, how much their kids want to live here, how complex the rules are… etc.

Hmmm… I see your point. These little matters all build up to a decision about their business, about why they can live here and run and build a company.

Clark says...
Oury says...

Yes and we have inheritance tax, and capital gains tax, which many countries don’t … so how keen do you think people are to move to the UK when there are increasing risks that the systems in place will damage their interests rather than benefit them?

Okay – fine – that’s for the rich individuals, but what about the businesses themselves?

Clark says...
Oury says...

You raise an excellent point - it’s not just the remittance basis that is attractive to people. It’s our straight forward corporate law with no requirements for notaries (really what is the point of them?). It’s also incredibly easy to set up limited companies (with the offer of incredible business protection). We don’t require any directors to be British, or live here and it’s also an excellent place to build a corporate tax structure.

And that’s why the UK continue to top polls such as this. I really must find my Union Jack…

I really must find my Union Jack

Clark says...
Oury says...

Well, careful, nationalism is half the problem. Definitely don’t roll out your St George flag, it basically means racism to some.

I really must find my Union Jack

Yes HSBC is being accused of being anti-Brexit with their “We Are Not an Island” adverts defining what makes us British.. I actually thought they were spot on and it made me feel good to be British.

Clark says...
Oury says...

Well so did I – but there is a complex battle between a global world and local businesses - and how so many communities have changed due to it. But it is now almost impossible not to be a global business… and we don’t have many resources or tonnes of space, or the warmest place for tourists, so we do need to be good at something… and that thing for a long time has been business, and to be good at business we need to be open, and have flexible rules for foreigners…

And you think Brexit and Corbyn might mess that up?

Clark says...
Oury says...

Yes. Without a doubt. Maybe eventually it would be okay. Maybe in 20 years we will be in a better place. MAYBE. I mean gosh most businesses think in terms of 5 years at best, they don’t have time to wait 20 years. I mean what is the plan, do a South Korea ? Have a civil war so in 50 years when we are all dead from working so hard to dig the country out of it, and our country is split in half we become really great again… I mean…

Oury!… back on the point! So what is wrong with Corbyn’s plans

Clark says...
Oury says...

Right yes, so Corbyn’s other plan is to raise corporation tax to 30%. On one level this is a pretty acceptable rate of tax round the world. Probably one of the most popular. But corporate tax rates have been dropping, look at the US, because it really is a global business community and companies move their HQ. And the UK’s current low rate of tax, and a few helpful rules (no withholding tax on dividends, no tax if you sell subsidiaries, attractive R&D relief) makes it a great place to put a holding company for international corporate structures. So even if you don’t have a big customer base in the UK, you might put your HQ here. And given that companies these days are more and more centralised that makes the UK attractive. Indeed only a few places have these rules. Also the plan is to have higher income tax if you earn over £80k which also puts off company directors. And also abolishing Entrepreneur relief. A hugely appreciated tax for business owners to encourage them to grow here. We know people from all parts of the world who live in this country partly because they really like the Entrepreneur tax relief.

Yeah plus free movement of goods may end with Brexit, tariffs chaos, the damage to the British Brand, we’re in an absolute muddle!

Clark says...
Oury says...

It certainly is worrying. And a key point there is that if you are a distributor or manufacturer of goods and you are using the UK to import into Europe, you need to do something about it due to all the confusion.

Like what?

Clark says...
Oury says...

Get a VAT registration on the continent, Probably Holland or Belgium, I would say, and get an EU company, and to be honest you may even choose Ireland. Without getting lost in the detail you need both of these things to be able to move goods around Europe and if we have a no deal scenario, or even if we leave in an orderly manner, you’re going to need these things set up.

Crikey… and are businesses prepared?

Clark says...
Oury says...

No… because they have been waiting for answers, and now the answer is still… errrrr…we don’t know. So now you need to move. But this is small fry and not that difficult to fix, and doesn’t really affect service businesses. The thing that would kill the UK so much more - and change the landscape of the UK business market – would be if Corbyn spends too much, you get a run on the pound, and then capital controls.

Ooooo capital controls. I’ve seen those from Iceland and India. This means you can’t move money out of the country right?

Clark says...
Oury says...

Bingo. And trust me that is a big deal. The young who understandably support Corbyn aren’t old enough to remember what that is like - and they may have a bit of a shock when they are only allowed to take £200 with them on holiday. £200 that buys a lot less than it did. Or they order online, and they can’t get what they want as it’s coming from outside the UK!

But we’ve got to spend more, we do have to sort out our public services…

Clark says...
Oury says...

We do, it’s true. But I’m not trying to raise the great debate between big and small government, spending more and controlling more, or laissez faire. But Hong Kong is another super successful city due to its trade and UK law, and they are a prime example of the success of laissez faire politics. Let’s just say, it works within the architecture of an English legal system and what business mostly want is lack of red tape. Half the rules make very little difference. It’s just bureaucracy being bureau-crazy. And this is what puts people off.

Yeah it’s true. fundamentally people are lazy, and impatient - I wouldn’t think of opening an Indian company - much as I love the place - because it would be far too dull and take far too long. Someone else can do it, but I really have better things to do with my time.

Clark says...
Oury says...

Exactly.

But isn’t that what we are leaving Europe for, to get rid of their silly rules? I mean GDPR is an irritation to companies.

Clark says...
Oury says...

Yes, it is true that Europe does create some red tape, but they aren’t actually all bad (food for instance) and here is the bigger point - it’s such an enormous market, err the biggest… in the world, that you are going to have to trade with it eventually and then face those rules regardless. Also much of what people like about the UK is that it operates mainly within European rules, while being less bureau-crazy. You can open a UK company in hours, no-one needs to be British or live here…. It is seriously easy to do. And it’s a robust structure. This is definitely not the case in Europe.

Jeezz - every time we have one of these chats I get so depressed - next time we have one of these chats I want smiling happy people laughing and being upbeat. OK? But… we’re here – so let’s bottom this chat out - let’s go there then. Okay.. So let’s say Brexit’s as bad as it can be, and Corbyn as crazy as he is, gets elected as PM….. what should you do?

Clark says...
Oury says...

Oury: (positive) It’s a very good question. Have faith in our political party system? Ermmm… maybe. But if you don’t then the following might need to happen:

  1. If you sells goods (as opposed to services),you need a VAT registration on the continent. Probably Holland. Maybe Belgium. Maybe somewhere else if that is mainly where your customers are. This means you can ship there direct and get goods into the European market and freely move them about.
  2. If you are doing 1 because you have goods, you also need an EU company. This is for legal reasons connected with needing an EU company to avoid fiscal VAT representation. That is when you need a local responsible party in the country of VAT registration, and that can be expensive. Only UK, Germany and Czech Republic don’t require fiscal VAT representation which means everywhere else needs you to have a local legally responsible person. So, well, it’s complicated, but trust me on this. If we leave you will need one. So get the company open, get the bank account functioning. Pick a country that either has great rules for companies, Ireland, or is great for importation and goods and on the continent, Holland, and pretty easy to open a company.
  3. If capital controls come in you will want ways to book your revenue physically outside of the UK. Or it won’t be leaving and you’re going to be taxed hard. So point 2 again - get an EU company, depending on where you can travel to or where you fancy setting one up.
  4. If things start getting rough you will have to employ people and do things there, but for now it’s just getting ready so you can move fast and before they put in rules to make it more difficult to do so. That way you will have a way to trade with your global customer base outside of the UK.
  5. Get a European passport if you can, through spousal or ancestry reasons. A lot of countries require an EU citizen to form a company (not the UK, sob), but you might well find yourself needing to put your company where you have a person, possibly yourself with a right to live there.
  6. Gift more to your kids sooner rather than later, on the Corbyn tip. Advance your pass of wealth downwards.
  7. If you’re going to sell your company, it would be a good idea to sell before any rules change. Entrepreneur relief is on the ropes.
  8. Declare dividends, take more money earlier out of your business.
  9. The good news is, worst case, you get to invest harder in your company because it gets a bigger tax deduction.
  10. Hope like hell it doesn’t put off the talent and the business community. Many see business as a big bad thing. In my experience businesses do care about their staff and the world - to the extent that it is sometimes detrimental to them. We’re good at business in the UK and should be proud of it. Because it’s what keeps the lights on. And light, is exactly what we need now in these dark times.

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We are but two fictitious characters throwing out ideas and comment to stimulate debate and collect information. As professional service firms, we are open minded people and think independent thought and debate is essential to help understand, as well as navigate, complex problems. By joves – doing business across Europe (and the world) is set to become a whole lot more complex in light of recent seismic political events. As businesses - we provide information and hopefully some wisdom - and we see this blog and its caricatures merely as a much more fun, perhaps slightly controversial way, of stimulating debate and collecting ideas. We’re searching for some true pearls of wisdom, and as we find them, we’ll share them with you.

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