Laurence Field, Corporate Tax Partner
- calls for action on the digital services tax:
The tactical retreat from a digital services tax by the French in January now leaves the UK in an interesting position, given its stated desire to introduce the levy and ongoing trade talks with the US.
The solution will be clear after the March Budget, but the Chancellor could square the circle by introducing the digital services tax as originally proposed in April 2020, but cite the progress made by the OECD in recent months as a reason to delay the collection of the tax until the end of the year. Manifesto commitment met, trade talks with the US still on track and, if the delay were until April 2021, get the French to make the next move.
The new Chancellor will show us on 11 March just how smart he can be.
Stuart Weekes, Corporate Tax Partner
- wants innovation incentives:
To have a strong negotiating position you have to bring something of value, something the other side wants. The government must create a business economy that really fosters innovation, makes the UK a place where ideas flow, where failure is part of the research and development process and where innovation is nurtured and leads to commercial success.
While we expect a small increase in the rate of credit large companies can claim for investment in R&D, this does not help the many SMEs who undertake R&D. SMEs are the bedrock of innovation and the UK’s R&D scheme for SMEs should be extended. The additional benefit to SMEs is currently 130% of qualifying R&D costs, this should be increased to 150%. This would mean that an SME investing £100,000 in qualifying R&D costs would save corporation tax of £47,500 – real value to SMEs who can reinvest that saving in further innovation.
The definition of a qualifying R&D project also needs to be revisited. Drawn up in 2003, technology has advanced significantly since then, rendering the definition outdated.
If the government is serious about the UK rising like a phoenix in the post-Brexit world, it needs to welcome and foster innovation. Instead of committing the patent box to history the government should be enhancing it. Making the patent box available to wider range of innovation, reducing the effective corporation tax rate to 5% and making the qualifying process simpler will increase the attractiveness and reduce the barriers to companies making a claim.
Mr Sunak is in an enviable position with the power and opportunity to make the right decisions. The world is waiting to see what the UK can offer. Mr Sunak, please recognise that UK businesses will continue to innovate, they have no choice; but they still need your support!
Johnathan Dudley, Head of Manufacturing - wants SME-specific tax reliefs:
To make a success of Brexit, the UK needs to be renowned as a strong export nation and one at the forefront of innovation. In order to encourage capital investment in Industry 4.0 technology and equipment, the Chancellor should consider implementing an enhanced level of capital expenditure relief, at least for SMEs and at a level greater than currently available through Annual Investment Allowance. Likewise, enhanced revenue reliefs for SME export activity should also attract enhanced tax relief. By implementing such initiatives, in a similar method to the tried and tested R&D tax relief, the government could fairly swiftly go some way in securing the UK’s future as a major global player in innovation and international trading.
This would be a solution that could be easily legislated to benefit SMEs and would improve both productivity and global competitiveness.
Nick Latimer, Private Clients Partner
You may expect this budget to have a few surprises in it, given the outward strength of the Conservative government and the resignation of Sajid Javid. We’ll almost certainly expect changes to Entrepreneurs’ Relief, but I would expect a change to make it harder to qualify. This may be an increase in the length of required ownership from two years to five years, rather than its abolishment. Capital gains tax rates are relatively low, and I might expect these to increase to close the gap with income tax rates.
It would be great to see a change to remove extreme marginal rates of income tax of more than 60% at particular pressure points, such as £50,000 above which child benefit is abated, and £100,000 above which the personal allowance is abated. This would need to be paid for, and tax relief on pension contributions have long been mooted as a target for change. This could very well be something we see in the budget, with a move to a flat rate of tax relief on pension contributions, perhaps somewhere between 20% - 30%.This would see basic rate taxpayers benefit from pension saving as much as higher rate taxpayers, while saving the treasury significant sums without needing to change marginal rates of income tax.
Finally, radical changes to Inheritance Tax have recently been proposed by the All-party Parliamentary Group to turn it into a lifetime gift tax, but this is not government policy and, therefore, is not likely to appear in this year’s budget. However, I would expect another consultation over the next 12 months, resulting in a watered down reform of the tax, which will hopefully include the abolishment of the complex residence nil rate band and a higher tax free band for all.
Jane Mackay, Head of Tax
- calls for taxpayers to be given greater clarity and time to plan:
Eight years on from George Osborne’s speech against ‘morally repugnant tax evasion and aggressive avoidance’ in Budget 2012 and tackling tax abuse is generally viewed as a good thing. Some progress towards an international consensus has been made, but the result for business has been a heavier compliance burden and the threat of stricter penalties for getting it wrong.
Businesses face a double whammy of tax challenges and uncertainty with digitalisation of tax reporting in the UK, alongside the rediscovery of the volume of tax administration needed to trade with the EU from outside membership status.
To avoid further increasing the tax administrative burden, the Chancellor must give taxpayers clarity and time to plan for changes by using the tax consultation process. He must resist the temptation to unveil unexpected changes on Budget day. I would hope the Chancellor would announce an allocation of HMRC officers to respond to non-statutory clearances quickly and in this way give taxpayers advanced certainty on complex tax issues.
Stacy Eden, Head of Property and Construction
- wants the planning process simplified:
The Chancellor could reinvigorate UK house-building by freeing up more areas of green belt land. Investing in planning departments to try and get closer to house-building targets is of great importance. We are currently well short of targets and this is contributing to higher house prices in certain areas.
Paul Fay, Property Tax Partner
- notes that recent changes have negatively impacted the UK property market, and wants the Budget to focus on stability:
A stable and competitive tax system is vital. There have been too many changes in recent years and these have negatively affected the market. We need a period of tax stability.
Recent changes are driving private buy-to-let landlords out of the market; the Government should consider whether this is really increasing the supply of properties for first-time buyers.
Caroline Fleet, Property Tax Partner
- wants the Chancellor to listen to longstanding calls from the sector on stamp duty reform:
Stamp Duty Land Tax (SDLT) has consistently been perceived as the biggest tax barrier to real estate businesses, particularly in the residential market where reductions at the top-end would be widely welcomed and free-up liquidity which will ultimately increase housing transactions and sales.
Simon Warne, Private Clients Partner
- calls for action on Entrepreneurs’ Relief and inheritance tax:
The promised ‘review and reform’ of Entrepreneurs’ Relief (ER) which gives a 10% tax rate on sales of businesses is awaited with interest. Treasury officials and think tanks have pointed to the cost and raised a question mark on whether ER is the best way to incentivise entrepreneurs. However before he cuts too heavily, the Chancellor may wish to consider those at the more modest end of the relief spectrum who have saved up over more than 10 years in the expectation of a generous capital relief on retirement.
In similar vein there are concerns among owners of family businesses concerning the direction of travel on Inheritance Tax. A recent report by the All-party Parliamentary Group (APPG) recommended radical simplification. Potential casualties include Agricultural and Business Property Relief and the tax collected from wealthy families could potentially rise significantly as a result. The Chancellor should consult widely and carefully before taking such a major step, though.
Keri Pay, VAT Partner
- notes there are overdue VAT reforms which still warrant attention:
It is long overdue for a Chancellor to address the problem of the cliff-edge £85,000 VAT registration threshold which has been acknowledged as a disincentive for small business to become VAT registered and leads to an increase in off-record “cash jobs” the closer to the threshold a business gets. He could consider tiered rates of VAT for small business, not just those operating under £100,000 but for all small businesses, to encourage growth and reduce tax avoidance.
I expect the UK to move quickly to satisfy the voices calling for the removal of VAT on women’s sanitary products, as well as considering other topical issues such as digital newspapers and e-books. This previously required the agreement of all EU Member States and such a move might indicate the UK’s intention to be more flexible with regard to VAT rates.
We could see the first steps towards a focussed approach with more rates of VAT, driven by social and economic pressure – for instance removing tax on sanitary products because it is widely agreed as morally wrong, or high fat and high sugar foods being removed from the zero rate to discourage unhealthy eating.