Why we need a corporate tax roadmap
By Donald Drysdale for ICAS
28 September 2018
With doubts about future global trading arrangements and other Brexit-related uncertainties, Donald Drysdale sees a corporate tax roadmap as key to making the UK more competitive.
A decade of history
In June 2010 the then Conservative and Liberal Democrat Coalition Government launched a consultation on a new approach to Tax policy-making, putting forward ambitious standards for proposing and consulting on tax policy changes, and for legislating, implementing and evaluating these.
A few months later, in November 2010, the Coalition published a Corporate tax roadmap setting out the Government’s long-term approach to the corporate tax regime.
That document was very well received by businesses generally and by the tax profession. It explained how the Government was responding to the concerns of business by prioritising corporate tax reform – aiming for a more competitive, simpler and more stable tax system which would create the right conditions for business investment.
Specific elements of reform, set out in the roadmap, included a plan to reduce the main rate of corporation tax from 28% to 24%, which was to be its lowest ever rate. Other projected elements of reform included changes to the controlled foreign company (CFC) rules and a commitment to introduce a patent box regime.
The corporate tax roadmap was widely welcomed as a statement of the Government’s intentions – even where these were not all in the interests of business – and for several years it provided a degree of clarity and consistency around the direction of corporate tax policy.
Less than six years later, in March 2016, the then Conservative majority administration published a Business tax roadmap purporting to set out the Government’s plans for business taxes up to 2020.
This business tax roadmap was not so well received as it failed to set out any new long-term strategy for corporate tax. It did little more than recite a number of reforms which had already been announced or were underway, without adding any new information of substance. For businesses it provided no reassurance on a future direction of travel, and for tax professionals it added little to their understanding of what might lie ahead.
The situation today
Over the last few years, businesses generally – and large, economically significant companies in particular – have faced frequent, often unpredictable, changes to the tax regime.
The corporation tax rate has been steadily reduced to its current level of 19%, and the Government still seems committed to cutting it to 17% from 1 April 2020 onwards. However, the headline rate is not the only factor influencing large businesses to invest in the UK, and rate reductions appear to have been achieved only at the expense of simplification, certainty and stability.
If pressures on the public finances mean that the tax cost of dropping the corporation tax rate from 19% to 17% must be clawed back through further complex measures applied to large corporates (for example, along similar lines to the corporate loss restrictions), it is debatable whether this is a sensible approach.
Large companies have been affected by a series of tax changes arising out of the OECD/G20 BEPS project. They now face grave uncertainties and potentially damaging administrative burdens arising from Brexit, accompanied in many cases by existential threats to their domestic and international trading arrangements.
If the Government wishes to maintain the UK as an attractive location for international investment and for businesses in general, including start-ups, it should set out a clear strategy for corporate tax with renewed emphasis on predictability and stability. ICAS called for this in its Budget representations submitted to HM Treasury on 21 September.
In those representations, ICAS also said that it would welcome clarification of the position on Making Tax Digital (MTD) for corporation tax – especially for large corporates which already pay their tax by quarterly instalments and are subject to numerous other compliance obligations. If MTD is to be extended to corporation tax, there is a need both for proper consultation to produce a sensible reporting regime which is not unduly onerous, and an achievable implementation timetable.
The road ahead
In a welcome move, last December the Conservative minority administration announced its new Budget timetable and tax policy-making process, reaffirming the 2010 commitment to create a more predictable, stable and simple tax system.
In line with this commitment, the Autumn Budget now scheduled for Monday 29 October would be a great opportunity for Chancellor Philip Hammond to publish a new corporate tax roadmap. Ideally, this should set out the Government’s corporate tax strategy for at least the next five years, with enough certainty and clarity to allay the fears of businesses (including prospective inward investors) that might otherwise find the UK unattractive.
Given widespread doubts and concerns relating to Brexit and uncertainties surrounding the UK’s future trading relationships, such a roadmap could play a vital role in persuading businesses and investors that the UK has the potential to remain a competitive location for doing business.
The UK Government is beset by problems. Brexit negotiations have stalled, and the remaining 27 members of the EU are aligned against the Prime Minister’s current proposals. She faces the possibility of backbench revolt at the Conservative Party Conference, the threat of a leadership challenge, and the risk of a General Election.
In these circumstances, it might be difficult for the Chancellor to deliver a corporate tax roadmap which would have the desired effect. But it is vital that he does so.
Article supplied by Taxing Words Ltd