The announcement of a Spring Statement (rather than another Budget) on 26 March 2025 chimes with the promise of ‘predictability, stability and certainty’ in the UK government’s corporate tax roadmap (which had sat uneasily with the surprise announcement of an increase in employers’ NICs at the Autumn Budget). It also delivers on Labour’s commitment to one major fiscal event a year, although the media has already started to speculate whether the Chancellor may have to announce further tax rises.
Leaving that speculation to one side, I shall concentrate on consultations promised in the roadmap. Transfer pricing is a key area to watch. I will discuss caveats to the promised stability with a particular eye on the banking sector and add some observations on taxes other than corporation tax, which is the focus of the roadmap.
What consultations are expected?
The roadmap indicates three main areas for tax policy development: investment/capital allowances, R&D reliefs, and transfer pricing.
The government will consult on the tax treatment of pre-development costs and on giving more certainty to investors in major projects. Parts of CAA 2001 will (eventually) be rewritten, but no material changes to expenditure eligible for full expensing are intended. The government will ‘explore’ extending full expensing to leased assets ‘when fiscal conditions allow’ which seems unlikely to be any time soon.
Error and fraud remain a concern in respect of R&D reliefs (see also HMRC’s Approach to R&D relief publication) and the roadmap details certain administrative measures intended to address this. There will also be a consultation on ‘widening the use of advance clearances in R&D reliefs’ in Spring 2025. It will be interesting to see if this will be proposed as an optional statutory clearance process, an extension of the advance notification or something else.
What’s in store for transfer pricing?
Several consultations are planned on transfer pricing and HMRC is expected to commit additional compliance resource. We expect that the pricing of intra-group debt could be a focus area given our understanding that HMRC consider there to be unresolved issues following BlackRock with a risk of further disputes.
There will be a second-round consultation in Spring 2025 on reforms to the diverted profits tax, transfer pricing and permanent establishment legislation which will build on the previous government’s consultation and summary of responses, and look at the potential removal of UK-to-UK transfer pricing. A separate consultation will look at bringing medium-sized companies within the transfer pricing regime.
Another consultation will look at a requirement to report cross-border related party transactions – which (to me) sounds rather similar to the International Dealings Schedule proposal which was shelved by the previous government given the significant administrative burden for business (see the Transfer Pricing Documentation consultation of March 2021 and summary of responses).
The roadmap now states that the ‘government will ensure any additional compliance burden is proportionate and not beyond that imposed by peer jurisdictions’. The latter qualification may not give much comfort; the IDS proposal had referenced similar regimes in Australia, Belgium and Denmark (which would presumably count as ‘peer jurisdictions’).
The roadmap indicates that the government will review the treatment of cost contribution agreements (also known as cost sharing agreements). We understand that there is significant enquiry activity in this area with different views being taken by HMRC and other tax authorities as to when a CCA/CSA can be an acceptable pricing mechanism under the OECD’s Transfer Pricing Guidelines. Cross-border situations where the other tax authority recognises a CCA/CSA, but where HMRC consider it invalid, are clearly undesirable and problematic. It seems unlikely that this can be resolved through a change in HMRC’s approach and guidance, and a legislative solution may have to be explored. In the meantime, HMRC is expected to pause enquiries into the validity of CCAs/CSAs.
What limitations are there on promises of stability?
The roadmap promises the retention of features that make the UK attractive as a location for holding companies (such as the substantial shareholding exemption, dividend exemption and limited withholding tax) and more generally (such as the 25% headline corporation tax rate, full expensing, patent box and the ‘joint highest uncapped headline rate of R&D tax relief in the G7 for large companies’).
But, unsurprisingly, the roadmap does not generally rule out changes to the corporation tax system except for those expressly mentioned. It gives the government room to deal with ‘unforeseen developments’ (examples include tax abuse and issues with the application of existing legislation to new business models or practices).
Changes may also be made to ensure compliance with international standards (which has previously, in the context of the BEPS project, for example, meant additional anti-avoidance provisions and reporting requirements). Elsewhere, the roadmap notes that the UK’s implementation of the global minimum tax will be kept in line with developments at the OECD level.
The roadmap further indicates that the government will look at simplification (which is likely to be the main way to increase tax competitiveness in a challenging fiscal environment where tax cuts are considered unaffordable). There is an express commitment to look at rationalising tax rules on cross-border activity in light of the global minimum tax. I remain sceptical whether much legislation would be cut, but the repeal of the ORIP rules could be evidence to the contrary.
What about financial services?
The Autumn Budget did not change the banking surcharge or bank levy, and the roadmap does not commit the government to any changes (or to maintaining the status quo). It notes that: ‘We will keep bank tax under review, to ensure that these objectives [economic growth and responsible fiscal policy] are appropriately balanced’.
It is odd that the section on bank taxes does not cross-refer to the government’s Industrial Strategy (to be published in Spring 2025) even though the related green paper had listed financial services among the ‘eight growth-driving sectors’ to which support should be channelled (in contrast, the roadmap did include such a cross-reference in its discussion of certain tax reliefs for creative industries that the government intends to maintain).
Whether a pro-growth adjustment to bank taxation could be on the table in light of the Industrial Strategy remains to be seen.
And what about other taxes?
Digital services tax is the last point in the roadmap which notes the review that is due in 2025. It also reiterates the government’s commitment to remove the DST once a global solution is agreed at the OECD-level under Pillar One, although this commitment might ring a bit hollow – given the outcome of the US elections in November 2024, it now seems even less likely that an agreement will be reached.
Business rates was not among the taxes mentioned in the roadmap, but the government published a separate discussion paper on transforming business rates alongside the Autumn Budget.
The roadmap envisaged that the government would separately set out ‘how other tax and policy levers outside of corporation tax can support’ accelerating towards net zero. The Clean Power 2030 Action Plan of 13 December 2024 focuses more on the latter, although published alongside it (and at least tax-adjacent, even if not perhaps technically a tax measure) was a consultation to implement a carbon offsetting scheme for international aviation which sounds similar to (but would co-exist with) the UK’s Emissions Trading System. As clean energy industries (also among the eight growth-driving sectors in the Industrial Strategy green paper) ‘represent a significant potential growth area’, policymakers will want to ensure that the tax framework supports overarching net zero objectives. This may require that existing regimes are adapted for new technologies (or new applications of existing technologies), and the corporate tax roadmap would seem to give sufficient flexibility to achieve this.
The announcement of a Spring Statement (rather than another Budget) on 26 March 2025 chimes with the promise of ‘predictability, stability and certainty’ in the UK government’s corporate tax roadmap (which had sat uneasily with the surprise announcement of an increase in employers’ NICs at the Autumn Budget). It also delivers on Labour’s commitment to one major fiscal event a year, although the media has already started to speculate whether the Chancellor may have to announce further tax rises.
Leaving that speculation to one side, I shall concentrate on consultations promised in the roadmap. Transfer pricing is a key area to watch. I will discuss caveats to the promised stability with a particular eye on the banking sector and add some observations on taxes other than corporation tax, which is the focus of the roadmap.
What consultations are expected?
The roadmap indicates three main areas for tax policy development: investment/capital allowances, R&D reliefs, and transfer pricing.
The government will consult on the tax treatment of pre-development costs and on giving more certainty to investors in major projects. Parts of CAA 2001 will (eventually) be rewritten, but no material changes to expenditure eligible for full expensing are intended. The government will ‘explore’ extending full expensing to leased assets ‘when fiscal conditions allow’ which seems unlikely to be any time soon.
Error and fraud remain a concern in respect of R&D reliefs (see also HMRC’s Approach to R&D relief publication) and the roadmap details certain administrative measures intended to address this. There will also be a consultation on ‘widening the use of advance clearances in R&D reliefs’ in Spring 2025. It will be interesting to see if this will be proposed as an optional statutory clearance process, an extension of the advance notification or something else.
What’s in store for transfer pricing?
Several consultations are planned on transfer pricing and HMRC is expected to commit additional compliance resource. We expect that the pricing of intra-group debt could be a focus area given our understanding that HMRC consider there to be unresolved issues following BlackRock with a risk of further disputes.
There will be a second-round consultation in Spring 2025 on reforms to the diverted profits tax, transfer pricing and permanent establishment legislation which will build on the previous government’s consultation and summary of responses, and look at the potential removal of UK-to-UK transfer pricing. A separate consultation will look at bringing medium-sized companies within the transfer pricing regime.
Another consultation will look at a requirement to report cross-border related party transactions – which (to me) sounds rather similar to the International Dealings Schedule proposal which was shelved by the previous government given the significant administrative burden for business (see the Transfer Pricing Documentation consultation of March 2021 and summary of responses).
The roadmap now states that the ‘government will ensure any additional compliance burden is proportionate and not beyond that imposed by peer jurisdictions’. The latter qualification may not give much comfort; the IDS proposal had referenced similar regimes in Australia, Belgium and Denmark (which would presumably count as ‘peer jurisdictions’).
The roadmap indicates that the government will review the treatment of cost contribution agreements (also known as cost sharing agreements). We understand that there is significant enquiry activity in this area with different views being taken by HMRC and other tax authorities as to when a CCA/CSA can be an acceptable pricing mechanism under the OECD’s Transfer Pricing Guidelines. Cross-border situations where the other tax authority recognises a CCA/CSA, but where HMRC consider it invalid, are clearly undesirable and problematic. It seems unlikely that this can be resolved through a change in HMRC’s approach and guidance, and a legislative solution may have to be explored. In the meantime, HMRC is expected to pause enquiries into the validity of CCAs/CSAs.
What limitations are there on promises of stability?
The roadmap promises the retention of features that make the UK attractive as a location for holding companies (such as the substantial shareholding exemption, dividend exemption and limited withholding tax) and more generally (such as the 25% headline corporation tax rate, full expensing, patent box and the ‘joint highest uncapped headline rate of R&D tax relief in the G7 for large companies’).
But, unsurprisingly, the roadmap does not generally rule out changes to the corporation tax system except for those expressly mentioned. It gives the government room to deal with ‘unforeseen developments’ (examples include tax abuse and issues with the application of existing legislation to new business models or practices).
Changes may also be made to ensure compliance with international standards (which has previously, in the context of the BEPS project, for example, meant additional anti-avoidance provisions and reporting requirements). Elsewhere, the roadmap notes that the UK’s implementation of the global minimum tax will be kept in line with developments at the OECD level.
The roadmap further indicates that the government will look at simplification (which is likely to be the main way to increase tax competitiveness in a challenging fiscal environment where tax cuts are considered unaffordable). There is an express commitment to look at rationalising tax rules on cross-border activity in light of the global minimum tax. I remain sceptical whether much legislation would be cut, but the repeal of the ORIP rules could be evidence to the contrary.
What about financial services?
The Autumn Budget did not change the banking surcharge or bank levy, and the roadmap does not commit the government to any changes (or to maintaining the status quo). It notes that: ‘We will keep bank tax under review, to ensure that these objectives [economic growth and responsible fiscal policy] are appropriately balanced’.
It is odd that the section on bank taxes does not cross-refer to the government’s Industrial Strategy (to be published in Spring 2025) even though the related green paper had listed financial services among the ‘eight growth-driving sectors’ to which support should be channelled (in contrast, the roadmap did include such a cross-reference in its discussion of certain tax reliefs for creative industries that the government intends to maintain).
Whether a pro-growth adjustment to bank taxation could be on the table in light of the Industrial Strategy remains to be seen.
And what about other taxes?
Digital services tax is the last point in the roadmap which notes the review that is due in 2025. It also reiterates the government’s commitment to remove the DST once a global solution is agreed at the OECD-level under Pillar One, although this commitment might ring a bit hollow – given the outcome of the US elections in November 2024, it now seems even less likely that an agreement will be reached.
Business rates was not among the taxes mentioned in the roadmap, but the government published a separate discussion paper on transforming business rates alongside the Autumn Budget.
The roadmap envisaged that the government would separately set out ‘how other tax and policy levers outside of corporation tax can support’ accelerating towards net zero. The Clean Power 2030 Action Plan of 13 December 2024 focuses more on the latter, although published alongside it (and at least tax-adjacent, even if not perhaps technically a tax measure) was a consultation to implement a carbon offsetting scheme for international aviation which sounds similar to (but would co-exist with) the UK’s Emissions Trading System. As clean energy industries (also among the eight growth-driving sectors in the Industrial Strategy green paper) ‘represent a significant potential growth area’, policymakers will want to ensure that the tax framework supports overarching net zero objectives. This may require that existing regimes are adapted for new technologies (or new applications of existing technologies), and the corporate tax roadmap would seem to give sufficient flexibility to achieve this.
