Businesses want a boring Budget, reveals EY survey

18 March 2014

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Government’s progress on corporate tax risks being undermined by ‘uncertainty’

Certainty and stability are at the top of the Budget wish list from business, according to an EY survey, with nearly 80% of companies stating that it should be a key driver of the Chancellor’s tax policy choices.

The survey of 143 business decision makers - over half of which (54%) were CFO’s, heads of tax or tax directors  – showed that while the Government’s changes to the corporate tax system are having a positive impact on the UK’s competitiveness, it risks being undermined by political and legislative uncertainty.

‘Job done’ on corporate tax

According to the survey, 65% of respondents said that the corporate tax rate had contributed most to improving the competitiveness of the tax system in the UK. And when asked specifically about the rate, the vast majority (85%) said that the 20% headline rate was about the right level.

However nearly a quarter of businesses (24%) said they considered the biggest threat to the UK’s tax competitiveness and investment to be ‘uncertainty’. This was followed closely by personal tax rates (20%) and the media focus on multinational taxation and fair tax (13%).

When asked what the Chancellor could do encourage their organisation to accelerate their investment plans, ‘certainty’ topped of the list (15%).

Chris Sanger, head of tax policy at EY comments: “The Chancellor can be confident in the knowledge that the corporate tax regime is already bringing real jobs and real investment to the UK’s shores. We know of over 60 companies looking to complete headquarter relocations to the UK in the next 18 months, and expect that these may be just the vanguard.

“But the UK could be doing even better. The overwhelming message coming through from our survey is that uncertainty is limiting the impact of the good work that has been done on the corporate tax rate, patent box, and Controlled Foreign Companies reforms.”

Causes of uncertainty

When asked about the cause of uncertainty, respondents stated both legislative and political factors including: the forthcoming election; political ‘tinkering’; potential responses to the OECD’s action plan on Base Erosion and Profit Shifting; the influence of international concerns through the EU / OECD; and the complexity of the tax system.

Survey respondents also pointed to the prospect of Scottish independence, with almost a quarter (24%) stating that it would feature in their organisation’s decision making going forward.

Chris Sanger commented: “Clearly, some of these factors are outside of the Government’s control or are necessary to the development of a tax system that is fit for purpose. But it should nevertheless come as a warning to the Chancellor, and a plea to avoid causing any unnecessary uncertainty, which may hamper investment intentions. Businesses want to be able to take informed decisions and limit the risks that they have to bear; they are asking for a boring Budget on corporate tax.”

It’s time to turn to personal tax

However, rather than tinkering with the corporate tax system, the survey suggests that the Chancellor should instead be focussing his attention on personal and employment taxes. When asked where the Government should be looking to reduce the tax burden, almost half (45%) said that income tax rates were too high and almost a third (29%) said that income tax allowances could be increased. Taken together, 74% wanted to see income tax changes.

The report also highlights that 54% of tax revenues are generated from income tax and national insurance alone, compared to just 9% for corporate tax.

Chris Sanger said that he would like to see the Government learn from the success of the Corporate Tax Roadmap, which was introduced four years ago and designed to set out the future shape of the corporate tax system: “The UK is moving ever closer to achieving its ambitions of creating the most competitive corporate tax regime in the G20, but there’s now a real opportunity for the same level of focus and clarity to be provided around the future direction of personal taxes.

“The personal tax system can be extremely complex and is increasingly difficult for taxpayers to navigate, with some rules going back hundreds of years. The calculation of some employee benefits, for example, dates back to a time when a higher paid employee was earning anything more than £8,500 per annum and an expensive property was £75,000, something many first time buyers can only dream about.

“It would be a huge undertaking, but a personal tax roadmap needs to be the next item on the Chancellor’s agenda.”

Concluding he added: “Certainty should be a benchmark in all policy decisions, alongside simplicity in structure and clarity around objectives. In this way, businesses and individuals alike will be able to plan ahead with full knowledge of the associated tax implications and the UK will remain truly open for business for a long time to come.”