Businesses call for fresh look at tax landscape ahead of Autumn Statement

15 September 2016

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  • EY survey finds that majority of companies (71%) believe that relief for genuine business expenses can boost business…
  • …while fewer than half (43%) think cutting mainstream corporation tax would be the most effective rate measure
  • Greater clarity sought on how tax system works

The Government should look beyond a headline-grabbing cut in corporation tax and grasp the opportunity to reshape the UK’s tax landscape, according to EY, whose thinking is supported with a survey of more than 175 UK and international businesses.

Businesses were asked what changes should be made to the UK’s tax system in order for it to play a role in the Government’s commitment to keep the UK open for business following the vote to leave the EU.

Nearly three-quarters (71%) called for more relief for genuine business expenses, including the cost of offices and industrial buildings. The results also underlined an appetite for more certainty from HMRC on how the UK’s tax system will work.

According to the survey, 50% more businesses believe that a reduction in the employment tax burden, such as the rate of employers’ national insurance contributions or the apprenticeship levy, would play a greater role in making the UK a more attractive destination for investment than a further reduction in the headline rate of corporation tax.

In terms of indirect tax, 50% of companies felt that measures to ensure that UK organisations did not suffer in relation to the speed of VAT recovery would have a major impact. Nearly two-thirds (63%) of businesses in the financial services sector said a cut in the rate of VAT would have the most positive effect in terms of making the UK more attractive for them to invest.

Chris Sanger, Head of Tax Policy at EY, said: “With the Autumn Statement on the horizon, there is an opportunity to take a fresh look at the tax system. The mainstream corporation tax rate has always been a visible factor in showcasing the UK but the Government should look elsewhere if it wants to make a more significant and long-lasting positive impact.

“That means having a system that taxes profits and provides relief for genuine business expenses rather than ignoring the cost of industrial buildings, offices and other essential expenditure. By charging tax on profits falsely inflated by ignoring such costs, the Government adds complexity and also distorts who pays corporation tax, penalising infrastructure precisely at the time that the UK is looking to maintain and enhance investment in this sector.”

More clarity

EY also urged the Government to re-examine the current system of tax administration with a view to providing greater clarity. Seventy-five per cent of survey respondents said that responsive and constructive clearance rulings from HMRC would make the biggest difference for their business in terms of positive impact. More than seven out of 10 (72%) believed that more joined up policy making between business and Government was the answer.

Sanger added: “There is a clear desire for certainty on how the tax system will work in practice. Businesses need to know the full implications of their actions from a tax perspective if they are to be able to respond quickly and decisively. The Chancellor needs to replace the Business Tax Roadmap published by his predecessor earlier this year with a blueprint for the future that sets out the Government’s principles on tax.”

EY summed up their conclusions in the report: The tax landscape is changing: Building a business tax blueprint for the UK post-Brexit, which says the Government should focus on four key areas:

  • Returning to real relief for genuine business expenses
  • Providing certainty by setting out, communicating and implementing tax law in line with a clear plan
  • Thinking beyond a headline-grabbing change to the corporation tax rate and considering incentives that make a real difference
  • Being transparent in engagement with business

The conclusions were discussed with a panel of FTSE 100 Tax Directors who agreed on the importance of developing a long-term policy and ensuring that future changes provide certainty.

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