Budget 2016 debate will again see tax avoidance under the spotlight. But IoD members do not want the chancellor to rush into over-taxation at the expense of enterprise, says the IoD’s head of taxation, Stephen Herring
IoD members remain strongly supportive of the government’s fiscal deficit-reduction strategy but expect to see business tax simplified and reformed to improve incentives.
We consider that the principal criteria for business tax reforms in budget 2016 ought to be: improving the competitiveness of UK business in comparison to European and global competitors; enhancing incentives for investment in the UK by entrepreneurs and foreign direct investors; removing unnecessary layers of tax on business; and broad-based business tax simplification.
Our members support the ‘crackdown’ on aggressive tax avoidance but would also welcome much more explicit guidance on those tax-planning arrangements which HMRC considers do not fall foul of such measures.
Proposals for business tax reforms in budget 2016
In principle, our members favour tax devolution where, for example, it facilitates decisions about infrastructure investment being made closer to where the advantages occur. They would, however, be understandably concerned should devolution result in an additional tax burden.
For example, the devolution of corporation tax to the nations or regions would result in significant costs if a business’s tax computations needed to be divided between its UK business locations.
We are disappointed that the government has not yet launched a consultation on the benefits and costs if the UK were to permit limited companies which are SMEs to adopt a US-style ‘S-Corporation’ status, replacing corporation tax with income tax on their shareholders.
Many of our members contact us about business rates. In essence, they believe that rateable valuations are not sufficiently responsive to the underlying value of business premises and that the targeted reliefs are withdrawn too aggressively as a business expands from microbusiness to a small/medium-sized one. Both of these aspects ought to be addressed in budget 2016.
Our members would value a clearer statement from HMRC that any outcomes from the OECD/G20’s Base Erosion, Profits Shifting (’Beps’) initiative will not adversely impact UK SMEs and members are concerned that the Treasury will ‘gold-plate’ Beps outcomes well beyond what occurs in competing G20 countries, to the disadvantage of UK businesses.
Proposals for business tax reforms 2017-20
We remain concerned that the reduction in the Annual Investment Allowance (‘AIAs’) from £500,000 in 2015 to £200,000 in 2016 will reduce capital investment by larger SMEs and urge that investment by these businesses is closely monitored, with AIA restored to its 2015 level if capital investment falls. Our Policy Voice Survey of members in January 2016 demonstrated strong support for this.
We recently published a paper (Opening the Equity Economy) on the Enterprise Investment Scheme and Seed Enterprise Investment Scheme and how the criteria could be reformed to expand investor access, broaden the ambit of qualifying businesses and simplify the reliefs.
The UK performs well in comparison to our European competitors in this area, but other countries, notably the US, have been more successful in promoting equity investment in start-ups and scale-ups.
In summary, the government needs to continue its crackdown on abusive and aggressive tax avoidance schemes but also needs to implement bold reforms to incentivise business, promote capital investment and reduce the tax compliance burden.
Part two online now: Stephen Herring discusses Budget 2016 and personal taxation