Government should ‘grasp the opportunity’ to reshape the UK’s tax landscape

THE Government should look beyond a headline-grabbing cut in corporation tax and grasp the opportunity to reshape the UK’s tax landscape in this year’s Autumn Statement.

EY said its thinking was supported by the results of a survey – ‘The tax landscape is changing: Building a business tax blueprint for the UK post-Brexit’ – conducted with 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 said they felt that measures to ensure 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.

Andrew Spence, Head of Tax at EY in the Midlands 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.”

EY also urged the Government to re-examine the current system of tax administration with a view to providing greater clarity. It said 75% of survey respondents felt that responsive and constructive clearance rulings from HMRC would make the biggest difference for their business in terms of positive impact. Almost three quarters (72%) believed that more joined up policy making between business and Government was the answer.

EY summed up the conclusions in the report by saying 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