Whatever your views on HS2 (and I am a supporter), it was surely a stupid idea for Rishi Sunak to announce the cancellation of the Birmingham to Manchester phase during a Party Conference, with no consultation. The project had passed all its legislative stages and the companies involved could reasonably have expected that it would go ahead as planned. But the wider impact of cancelling a major project at such a late stage will be that the next major infrastructure scheme will be more expensive, because the risk that something similar will happen again will be priced in to all of the tenders submitted.
It is this commercial need to price in risk that explains why the Chancellor Rachel Reeve’s announcement that there will be a Business Tax Roadmap has been widely welcomed. Above all, most businesses like certainty, particularly from the tax system – it enables them to get on with running their operations without the added concern of unexpected tax changes. And if this Government wants to stimulate economic growth and improve our infrastructure, reducing tax risk should make that at least a little bit easier.
We have, of course, had roadmaps before, and indeed as part of my work with the CIOT’s Technical Committee I started suggesting them in the late 1990s. The first one was the Corporate Tax Roadmap of 2010, early in the life of the Coalition Government. It came at a time when there was concern about corporate inversions and that the UK was becoming less internationally competitive, and set out a clear sense of direction to a more territorial tax system, with a reducing rate of corporate tax and a wider tax base. It is generally considered to have been a success, helping to sustain corporate investment in the UK during a time of austerity. Its successor, the Business Tax Roadmap of 2016 was less coherent, and comprised mainly a summary of various changes which had already been announced. Chris Sanger of EY, writing in The Times (27 August), described it as ‘more like a travel journal’.
It is interesting that Rachel Reeves has described her proposal as a business tax, rather than corporate tax, roadmap, suggesting that it may go wider than corporation tax – perhaps to look at other taxes such as business rates. Her only concrete commitment so far is to confirm that the corporation tax rate will not go above its 25% current level during the lifetime of this Parliament. Not surprisingly, there has been a lot of speculation about what else might be included in the overall proposals.
The view from business has been overwhelmingly to ask for certainty, or at least predictability. Optimists hope that the corporation tax rate might be reduced, although realistically not in the short term – one FTSE 100 head of tax commented that ‘the low 20s is competitive’ in terms of the UK’s international position. Views on the base are more varied, with Dominic Mathon of RELX saying at a recent CIOT/IFS event that full expensing is a deferral of the tax base, which does not affect earnings per share and so is of little importance. However, for major infrastructure projects, the cashflow impact can be significant and so full expensing does reduce the overall cost. For smaller businesses, keeping the Annual Investment Allowance at £1m and not increasing the rate of tax are important.
Helen Miller of the IFS pointed out at the same CIOT/IFS event that there is more than one rate of corporation tax – not just the small companies (or, more accurately, smaller profits) rate, but additional taxes on banks and on oil and gas companies. These rates have varied significantly over recent years – mainly in response to a short-term need to raise additional revenue – and it would be good to have a sense of direction for the future.
However, it is not only the tax rate and the tax base which are important to businesses. The administration of tax is also key – being able to get certainty, whether through rulings, clearances or clear guidance, is something which businesses of all sizes value, perhaps more than Ministers might realise. The relationship between large business and HMRC improved significantly in the 2010s, with the establishment of the Large Business Service and the use of Customer Relationship Managers (CRMs). Later, there were concerns – particularly from the Public Accounts Committee – that the relationship had become too ‘cosy’ and so CRMs were renamed Customer Compliance Managers. Sadly, the general decline in HMRC’s service standards over recent years has impacted businesses as well as individuals, and getting clearances, or resolving disputes, is becoming increasingly difficult. I was involved in the Tax Law Review Committee’s report a year ago (Large business tax disputes (Stephen Daly & Heather Self, 14 September 2023) which suggested a number of actions HMRC and Government could take, which would not be hugely expensive to implement.
For small businesses, the inability to get certainty on tax issues also seems to be contributing to the Tax Gap: the Tax Gap for small businesses’ corporation tax now stands at £10.9bn, with an astonishing 45% of small businesses estimated to be underestimating their tax liability.
Investing in HMRC, and recognising that providing a good service which can give businesses certainty about their tax position in a ‘meaningful timescale’ (as another FTSE 100 tax director put it), would therefore be something which could not only bring in immediate revenues, by reducing the Tax Gap, but could improve confidence in the UK tax system too. Let’s hope that Rachel Reeves looks more widely than just the rate of tax when she publishes the Business Tax Roadmap next month.
Whatever your views on HS2 (and I am a supporter), it was surely a stupid idea for Rishi Sunak to announce the cancellation of the Birmingham to Manchester phase during a Party Conference, with no consultation. The project had passed all its legislative stages and the companies involved could reasonably have expected that it would go ahead as planned. But the wider impact of cancelling a major project at such a late stage will be that the next major infrastructure scheme will be more expensive, because the risk that something similar will happen again will be priced in to all of the tenders submitted.
It is this commercial need to price in risk that explains why the Chancellor Rachel Reeve’s announcement that there will be a Business Tax Roadmap has been widely welcomed. Above all, most businesses like certainty, particularly from the tax system – it enables them to get on with running their operations without the added concern of unexpected tax changes. And if this Government wants to stimulate economic growth and improve our infrastructure, reducing tax risk should make that at least a little bit easier.
We have, of course, had roadmaps before, and indeed as part of my work with the CIOT’s Technical Committee I started suggesting them in the late 1990s. The first one was the Corporate Tax Roadmap of 2010, early in the life of the Coalition Government. It came at a time when there was concern about corporate inversions and that the UK was becoming less internationally competitive, and set out a clear sense of direction to a more territorial tax system, with a reducing rate of corporate tax and a wider tax base. It is generally considered to have been a success, helping to sustain corporate investment in the UK during a time of austerity. Its successor, the Business Tax Roadmap of 2016 was less coherent, and comprised mainly a summary of various changes which had already been announced. Chris Sanger of EY, writing in The Times (27 August), described it as ‘more like a travel journal’.
It is interesting that Rachel Reeves has described her proposal as a business tax, rather than corporate tax, roadmap, suggesting that it may go wider than corporation tax – perhaps to look at other taxes such as business rates. Her only concrete commitment so far is to confirm that the corporation tax rate will not go above its 25% current level during the lifetime of this Parliament. Not surprisingly, there has been a lot of speculation about what else might be included in the overall proposals.
The view from business has been overwhelmingly to ask for certainty, or at least predictability. Optimists hope that the corporation tax rate might be reduced, although realistically not in the short term – one FTSE 100 head of tax commented that ‘the low 20s is competitive’ in terms of the UK’s international position. Views on the base are more varied, with Dominic Mathon of RELX saying at a recent CIOT/IFS event that full expensing is a deferral of the tax base, which does not affect earnings per share and so is of little importance. However, for major infrastructure projects, the cashflow impact can be significant and so full expensing does reduce the overall cost. For smaller businesses, keeping the Annual Investment Allowance at £1m and not increasing the rate of tax are important.
Helen Miller of the IFS pointed out at the same CIOT/IFS event that there is more than one rate of corporation tax – not just the small companies (or, more accurately, smaller profits) rate, but additional taxes on banks and on oil and gas companies. These rates have varied significantly over recent years – mainly in response to a short-term need to raise additional revenue – and it would be good to have a sense of direction for the future.
However, it is not only the tax rate and the tax base which are important to businesses. The administration of tax is also key – being able to get certainty, whether through rulings, clearances or clear guidance, is something which businesses of all sizes value, perhaps more than Ministers might realise. The relationship between large business and HMRC improved significantly in the 2010s, with the establishment of the Large Business Service and the use of Customer Relationship Managers (CRMs). Later, there were concerns – particularly from the Public Accounts Committee – that the relationship had become too ‘cosy’ and so CRMs were renamed Customer Compliance Managers. Sadly, the general decline in HMRC’s service standards over recent years has impacted businesses as well as individuals, and getting clearances, or resolving disputes, is becoming increasingly difficult. I was involved in the Tax Law Review Committee’s report a year ago (Large business tax disputes (Stephen Daly & Heather Self, 14 September 2023) which suggested a number of actions HMRC and Government could take, which would not be hugely expensive to implement.
For small businesses, the inability to get certainty on tax issues also seems to be contributing to the Tax Gap: the Tax Gap for small businesses’ corporation tax now stands at £10.9bn, with an astonishing 45% of small businesses estimated to be underestimating their tax liability.
Investing in HMRC, and recognising that providing a good service which can give businesses certainty about their tax position in a ‘meaningful timescale’ (as another FTSE 100 tax director put it), would therefore be something which could not only bring in immediate revenues, by reducing the Tax Gap, but could improve confidence in the UK tax system too. Let’s hope that Rachel Reeves looks more widely than just the rate of tax when she publishes the Business Tax Roadmap next month.
