ICAS Tax Conference 2017: 'Tax in Uncertain Times'
Donald Drysdale comments on the uncertain times in which this year’s ICAS Tax Conference is to be held.
Setting the scene
Tax practitioners and their clients are working today against a backdrop of unprecedented economic, political and constitutional uncertainties.
While the UK economy has withstood the initial Brexit shock better than many commentators had anticipated, the devalued pound has dramatically changed the outlook for UK businesses and consumers. Britain’s prospect of future economic prosperity remains unclear.
As steps towards leaving the EU gather pace, the UK Government has announced its preference for a ‘hard’ rather than a ‘soft’ Brexit, creating added concerns for businesses trading with Europe. A Supreme Court judgment has sought to make the Government more accountable to Parliament, but is unlikely to change eventual outcomes.
In Scotland the Holyrood Government favoured Remain, echoing the views of 62% of the Scots who voted in the EU referendum, and hoped that the UK would at least retain access to the European single market. In the absence of this possibility, Holyrood still hopes that Scotland might be allowed continuing access to the single market.
With the minority SNP administration in Edinburgh disenchanted by Brexit, there has been talk of a second referendum on Scottish independence. Whether or not this will take place, the mere mention of it adds another element of uncertainty for businesses.
In spite of all these unknowns, practitioners need to be confident in giving tax advice. Even clients wholly within the UK must be assisted in complying with all relevant requirements of Scottish, UK and EU tax law.
Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT) were implemented on 1 April 2015. The Scottish rate of income tax (SRIT) was introduced on 6 April 2016 and Scottish income tax will increase the tax payable by Scottish taxpayers from 6 April 2017. Thus practitioners in Scotland, and their counterparts anywhere who have clients with Scottish interests, are already working with dual tax regimes within the UK. And the situation will soon become more pronounced.
As devolution evolves further, practitioners and their clients may need to understand the impact of new taxes. Those expected soon include Scottish Air Departure Tax (ADT) and the Northern Ireland rate of corporation tax, while in Wales the early introduction of Land Transaction Tax (LTT) and Landfill Disposals Tax (LDT) is likely to be followed shortly afterwards by the Welsh rate of income tax.
For many practitioners, a key challenge is keeping their technical tax knowledge up to date so that they can provide reliable professional advice. Even a relatively modest accountancy practice, let’s say in Scotland, might have business and personal clients scattered across the UK. This could include clients owning interests in land in Scotland, England or Wales, and companies operating in Northern Ireland.
The volume of tax legislation the adviser needs to understand is growing exponentially, not only at a devolved level but also at Westminster.
Finance Bill 2017
These uncertainties referred to above would be troublesome enough if the UK tax regime were stable and robust, but this is not so. Draft provisions published to date for inclusion in the Finance Bill 2017, too numerous to list here, already run to 671 pages of new or amending legislation. We can probably expect additional clauses to emerge from Philip Hammond’s final Spring Budget on 8 March.
The battle against tax avoidance continues. Measures in the Bill will address disguised remuneration, enablers of tax avoidance, and those that operate in the hidden economy.
For companies, complex changes will restrict deductions for interest and other financing amounts, and reform the treatment of certain types of carried-forward loss. Among other corporate tax provisions, the forthcoming Northern Ireland corporation tax regime will become more accessible to SMEs, the Patent Box rules will be extended to encourage collaborative R&D, and a new relief will help certain museums and galleries.
A new corporation tax relief will encourage contributions to grassroots sports. The rules for tax-advantaged venture capital schemes and social investment tax relief are to be revised. Employee shareholder status has not been widely used and its tax reliefs are to be abolished.
There are to be changes to the tax and National Insurance Contributions (NICs) treatment of termination payments, and new restrictions on the tax and NICs advantages of providing benefits in kind through salary sacrifice. Also, substantial changes are proposed to the tax treatment of certain non-domiciled individuals.
In an attempt to address the gig economy, the Bill will create two new £1,000 allowances for individuals – one for trading and certain miscellaneous income, the other for property income.
For the self-employed, Class 2 NICs are to be abolished and Class 4 reformed. Many freelancers will be adversely affected by new rules for off-payroll working in the public sector. And across the small business sector as a whole, even more far-reaching changes in tax administration threaten to impose costly new burdens.
Changes at HMRC
Many taxpayers and agents have found dealing with HMRC an increasingly frustrating experience in recent years, as local contact with HMRC has been withdrawn and there are new pressures to interact with them online.
In a massive change programme, HMRC’s 170 existing offices are to be replaced by 13 large regional centres, supplemented by four specialist sites and a headquarters in central London. They claim that the regional centres will offer the right environment to enable new digital ways of working.
Digital transformation, a persistent theme at HMRC, is causing acute concern among many of Britain’s 5.4 million SMEs, who account for 99% of all UK business. Among these, even micro-businesses with annual turnover above £10,000 will have to comply with Making Tax Digital (MTD), requiring them to maintain business records digitally – reporting to HMRC online at least every quarter.
At this time of great uncertainty, many practitioners believe strongly that tax-compliant business proprietors should be encouraged to pursue profitability and job creation as their top priorities, while HMRC’s efforts and digital resources should be targeted more aggressively towards tax evasion.
Article supplied by Taxing Words Ltd
The ICAS Tax Conference 2017 takes place at the Radisson Blu Hotel, Edinburgh on Tuesday 23 May. Cost: Members and Students: £192 Non-members: £234 CAPS Firm: £174. All prices include VAT.