Cecily Zamora
As of 1 May 2021, England is no longer included in EU tax laws following the UK's withdrawal from the EU. Previously, EU tax policies aimed to ensure fairness and foster growth by harmonizing taxation rules across member states, combatting fraud, and adapting to global economic shifts. The EU does not collect taxes or set tax rates, but it does oversee national tax rules in specific areas, such as value-added tax (VAT), taxes on energy products, and excise duties on alcohol and tobacco. With England's departure from the EU, transactions with Great Britain are now subject to different VAT rules and procedures compared to transactions within the EU. This change in relationship between England and the EU has resulted in new considerations for businesses and individuals regarding tax compliance and cross-border trade.
| Characteristics | Values |
|---|---|
| Is England included in EU tax laws? | No, England is not included in EU tax laws as it is no longer an EU member country. |
| EU tax laws | Aim to ensure fairness and foster growth by harmonizing taxation rules across member states, combatting fraud and adapting to global economic shifts. |
| Who decides EU tax laws? | The Council is the sole legislator on EU tax matters. |
| Who decides how much tax citizens pay? | The amount of tax each citizen pays is decided by their national government. |
| Who oversees national tax rules? | The EU oversees national tax rules in some areas, particularly in relation to EU business and consumer policies. |
| What is the purpose of EU tax policy? | To support competitiveness and growth, streamline business operations across the EU, reduce compliance costs, improve tax procedures, and fight tax fraud. |
| Are there specific agreements for certain areas? | Yes, certain areas have specific agreements such as value-added tax (VAT) and taxes on energy products, electricity, tobacco, and alcohol. |
| How does EU tax policy affect cross-border commuters? | If an individual lives in one EU country and works in another, their taxation rules will depend on national laws and double tax agreements between the two countries. |
| What about VAT and customs for transactions with England? | Following England's withdrawal from the EU, different VAT rules and procedures apply for transactions with England compared to transactions within the EU. |
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What You'll Learn
EU tax laws and the UK's withdrawal
The UK voted to leave the European Union on 23 June 2016, and notified the European Council of its intention to withdraw on 29 March 2017. Following negotiations, the EU and the UK reached an agreement on the terms of their new relationship, including the Trade and Cooperation Agreement (TCA), which came into force on 1 May 2021. This agreement provides for zero tariffs and zero quotas on the trade of EU and UK goods complying with rules of origin.
The UK's withdrawal from the EU has resulted in changes to tax laws and procedures, particularly regarding customs and value-added tax (VAT). For customs purposes, the UK is now treated as a non-EU country, with customs procedures and formalities applying to trade between the UK and the EU. This includes the need to file customs declarations and comply with specific rules for certain goods, such as excise goods.
In terms of VAT, different rules and procedures now apply for transactions with Great Britain compared to transactions within the EU and Northern Ireland. The UK confirmed that it would continue to operate a VAT system after leaving the EU, and secondary legislation has been implemented to enable this. However, there may be specific changes to the scope of zero and reduced VAT rates.
The UK's withdrawal from the EU has also impacted tax litigation. Under the Withdrawal Act, there are provisions in place for tax litigation proceedings that were ongoing or began within three years of the UK's exit from the EU. UK courts will no longer be bound by future decisions of the Court of Justice of the European Union (CJEU), but will consider them on a discretionary basis.
Overall, while there have been some changes to tax laws and procedures following the UK's withdrawal from the EU, the immediate impact on businesses was minimal. The TCA and other agreements in place between the EU and the UK aim to provide clarity and ease the transition to the new relationship.
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Double taxation
The EU does not collect taxes or set tax rates, and the amount of tax each citizen pays is decided by their national government. However, the EU does oversee national tax rules in some areas, especially in relation to EU business and consumer policies. For instance, EU countries have agreed to align their rules for taxing goods and services to ensure the free flow of goods, services, and capital within the single market.
In terms of double taxation, this occurs when the same income is taxed twice by two different countries. For example, if you live in one EU country but work in another, you may be subject to taxation in both countries. Most countries, however, have double tax agreements in place to prevent this. These agreements usually mean that the tax you paid in the country where you work will be offset against the tax you owe in your country of residence. Alternatively, the income earned in the country of work might be taxable only in that country and exempt from tax in the country of residence.
If you are a UK resident, you can check if the country you are earning income in has a double taxation agreement with the UK. If so, you can refer to HMRC's 'Double Taxation Digest' to understand how income such as pensions and interest is taxed. If you are claiming a refund on dividends, there is a specific form for individuals and companies. You can also seek professional tax help to claim double taxation relief.
Following the UK's withdrawal from the EU, there are now different VAT rules and procedures for transactions with Great Britain compared to transactions within the EU and Northern Ireland. The EU-UK Trade and Cooperation Agreement (TCA) provides for zero tariffs and zero quotas on all trade of EU and UK goods that comply with the appropriate rules of origin.
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EU tax policy aims
Since the UK's withdrawal from the EU in 2020, England is no longer included in EU tax laws.
Taxation plays a pivotal role in upholding a country’s social cohesion and sovereignty, and acts as the financial backbone for effective governance. Public revenues are the main source for financing essential public functions such as education, healthcare, welfare, safety, research, and public infrastructure systems. Tax revenues also empower countries to finance key decisions that shape both the economy and society.
Some tax policy measures are aligned with supporting the broader economic goals of the EU, addressing challenges such as demographic change, digitalisation, globalisation, and the impacts of climate breakdown, while promoting economic cohesion, reducing disparities, and facilitating smoother cross-border transactions and investment. Certain taxes, such as VAT, are a source of revenue for the EU budget. A percentage of what member states collect is transferred to the EU budget as an 'own resource'.
The EU is working on legislation in the area of taxation to support competitiveness and growth, streamline business operations across the EU, reduce compliance costs, improve tax procedures, and fight tax fraud. These legislative efforts aim to create a fairer and more efficient tax environment, including avoiding the double taxation of cross-border investment.
The legal framework for tax policy in the EU is provided by the Treaty on the Functioning of the European Union (TFEU), which includes the tax provisions chapter (Articles 110-113) relating to the harmonisation of legislation concerning turnover taxes, excise duties, and other forms of indirect taxation.
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EU tax legislation
One of the critical aspects of EU tax legislation is the value-added tax (VAT). Each EU member state is required to adopt a VAT in their national legislation that complies with the EU VAT code. The VAT rates vary across member states, ranging from 17% in Luxembourg to 27% in Hungary. The total VAT collected by member states is used to determine their contributions to the EU's budget.
Another important component of EU tax legislation is the distinction between direct and indirect taxation. Direct taxation remains the sole responsibility of member states, while indirect taxation affects the free movement of goods and services in the single market. To ensure a level playing field, the EU has established harmonised standards for company and personal taxation, and member countries have taken joint measures to prevent tax avoidance and double taxation.
It's worth noting that the UK's relationship with the EU regarding tax laws has evolved following its withdrawal from the EU. The EU-UK Trade and Cooperation Agreement (TCA) came into force on May 1, 2021, providing for zero tariffs and quotas on compliant goods. However, the UK is now treated as a non-EU country for customs procedures, except for Northern Ireland, where EU customs rules still apply.
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UK tax for expats
The EU does not collect taxes or set tax rates; this is decided by each national government. However, the EU does oversee national tax rules in some areas, such as business and consumer policies, to ensure the free flow of goods and services within the single market.
Regarding UK tax laws for expats, if you are a UK citizen and plan to leave the UK to live or work abroad, you must fill in form P85 and send it to HM Revenue and Customs (HMRC). HMRC will then inform you of how your tax will be affected. You may still have to pay UK Income Tax, depending on your residency status in your new country. You may also be able to continue paying National Insurance while working abroad, depending on where you are and for how long. This can protect your State Pension and entitlement to other benefits.
If you are a foreign national and plan to live, work, or study in the UK, you will have to pay tax on your income. This includes income from employment, self-employment, or rental income. Income tax is usually handled automatically through the Pay As You Earn (PAYE) system, where your employer deducts tax directly from your paycheck. If you are self-employed or earn rental income, you must report your income and pay taxes directly by filing a Self-Assessment Tax Return each year.
It is important to note that the UK taxes individuals based on their residence, not their citizenship. Therefore, if you meet the rules for tax residency in the UK, you will pay UK tax on your worldwide income. This means that if you are a UK citizen living abroad, you may have to pay tax on any UK income or gains made while you were abroad.
Additionally, the UK has double tax agreements with several countries, which help determine which country can treat you as a tax resident and prevent double taxation.
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Frequently asked questions
No, England is not included in EU tax laws. On 24 December 2020, the EU and the UK agreed on the terms of their relationship following the UK's withdrawal from the EU. The UK is now treated as a non-EU country for customs purposes.
The EU is working on legislation to support competitiveness and growth, streamline business operations, reduce compliance costs, improve tax procedures, and fight tax fraud. The aim is to create a fairer and more efficient tax environment.
No, the EU does not collect taxes or set tax rates. The amount of tax each citizen pays is decided by their national government. However, the EU does oversee national tax rules in some areas, particularly those related to EU business and consumer policies.
The EU has adopted a directive known as FASTER (faster and safer relief of excess withholding taxes) to address the issue of double taxation for cross-border investments. This directive simplifies the process of claiming a refund for excess tax withheld by the source country.
If an individual lives in one EU country but works in another, they may have to pay taxes in both countries depending on the double tax agreement between the two countries. The country where the individual works will usually tax the income earned on its territory. However, cross-border commuters should be treated as residents in the country where they earn their income, and should be eligible for the same tax reliefs, exemptions, and benefits.
