Tax manifesto

Paul Aplin

Tax partner, A C Mole & Sons, and chairman, ICAEW Tax Faculty Technical Committee

Tax policy should be guided by three watchwords: certainty, confidence and simplification.

I suspect I am not alone in finding the various manifesto tax goody bags mildly depressing. A giveaway here, a hypothecated takeaway there and little real substance…

As I don’t need anyone’s vote on 7 May, I think it’s safe to set out a tax-anorak manifesto with three main themes: certainty, confidence and simplification. Individuals and small businesses need more certainty in order to plan with confidence, so I would commit to a five year roadmap setting out the proposed income tax thresholds and rates, the treatment of savings income and capital allowances. I would include pension savings and CGT reliefs, so that people within five years of retirement could plan with certainty.

I’d try to rebuild confidence in HMRC by funding it properly and by committing to a comprehensive and independent tenth anniversary review. For too long, HMRC’s reputation has been in decline and that has to stop. I’d also ensure that tax policy makers spend time with businesses to get a genuine understanding of how they work.

I am beginning to think that tax simplification is less of a holy grail than an ignis fatuus. There seems to be no real political will to simplify, but an irresistible urge to tinker and add complexity. I’d be radical and scrap an entire tax which I suspect is paid in only a fraction of the cases to which it theoretically applies, because only the well advised are even aware of it: pre-owned asset tax.

So there you go: there is still room to pull some rabbits from the hat in future Budgets with a personal and small business tax roadmap, a commitment to restore confidence in HMRC and a genuine simplification measure. Not a cat’s chance of winning any votes with that lot, though...

Ian Brimicombe
VP Corporate Finance, AstraZeneca

Maintaining the UK’s tax competitive standing should remain a priority.

In relation to corporation tax, the competitive rate has served the UK well and it should remain in place rather than drift back up. The patent box should be made to work in the context of the new modified approach proposed by the OECD, in order to build on the UK’s position as a leading location for innovation. A broader set of incentives to improve the UK’s infrastructure would also be helpful and would attract investment looking for a long term return.

I am concerned as to the focus and dependence on tax avoidance measures to fill budget gaps, given the additional resources and effort already put in place by the coalition government, so my dependence on these would be much more modest. I would also not squeeze the wealth creators too hard as it is relatively easy for them to rebase outside the UK, and those that bring business investment and jobs to the UK need to be encouraged. I would also invest in HMRC to ensure that UK is securing its fair share of worldwide business income, which is under increasing pressure from competition and law change.

Regarding personal tax, we are facing increasing demographic related problems, as demand for health and care services grow rapidly and private pension provision falls. Setting a more stable tax environment for pension saving would assist individuals to plan and provide some contribution to their own welfare in future. The recent raid on tax relief for pensions is understandable to a point, but the uncertainty of continuous change is damaging to the UK economy in the longer term. Removing free travel, TV and winter fuel allowances from those with significant income for the redistribution to those in fuel poverty would also be a priority. Being courageous enough to collapse PAYE and NI must also be a priority, at least in this hypothetical manifesto.

Heather Self
Partner, Pinsent Masons

I’d make corporation tax more boring.

If I were the first female chancellor, I would work hard to make corporation tax more boring. First, there would be a moratorium on any new measures other than urgent anti-avoidance measures (and I would need convincing that measures are really necessary).

Second, I would take a hard look at tax rules where the taxable profit is different from the accounting profit: is there a good policy reason for the difference? Does the answer ‘fairly represent’ the amount we should tax? I would also question whether measures which apply only to one sector, such as the restriction on the use of bank losses, are justified.

Next, I would take a more fundamental look at the way we tax groups of companies and the way that losses are offset. I would look at the potential costs and benefits of moving towards taxing a UK group as a single entity, with automatic offset of intra-group losses. As part of this, I would finally abolish the schedular system, taxing all business profits as a single source. This could achieve significant simplification, although it may need to be phased in over a period of years, or be paid for by a change in the rate of corporation tax, if the cost implications are significant.

Finally, I would ask the Law Commission to carry out a review of the process of making tax law, including recommendations for the role of a permanent Office of Tax Simplification with funding to carry this work forward.

Chris Sanger
Global head of tax policy, EY

A new government starts from a position of strength but should look again at the basis of the tax system.

Whoever is called upon to form the next UK government will no doubt want to ensure a strong economy. Amongst other elements, this requires a competitive, sustainable, predictable and robust tax system. The new government should look to reforms that build on this.

The UK starts from a strong position. In a recent EY survey 68% of our clients considered today’s tax system to be more competitive than it had been when the chancellor outlined the ‘open for business’ commitment in his first Budget speech. This also echoes EY’s Attractiveness survey (2014) which showed that the UK has risen from eighth to fifth in the global ranking of attractive FDI locations for the next three years, overtaking Germany for the first time.  

However, the limits of tax policy were also shown as only 31% of respondents felt that the changes over the last few years were enough to encourage their organisation to locate or expand activities in the UK.  

If the new government wants to build from the positives in the survey, it needs to look again at the basis of the tax system. Whilst a low corporate tax rate and a broad tax base are two key elements of a well-designed tax system, business also needs to get tax relief for legitimate business-related expenditure, such as tax depreciation on industrial premises or travel costs of employees. The denial of relief for valid costs risks undermining the integrity of the tax system, increasing the effective tax rate and introducing unnecessary complexity and administration.

Finally, the next government would be well advised to set out a roadmap for each type of taxpayer, providing insights into the priorities of the government. This would enable businesses to decide where, whether and how much to invest in the UK.

Steve Edge
Partner, Slaughter and May

Whatever the outcome of the election, we shouldn’t expect too many changes in the business tax arena.

On business tax – apart from the rhetoric on tax avoidance generally, and on multinationals in particular (DPT being in part a political diversionary tactic and in part a strengthening of our transfer pricing rules) – little has been said on what changes might be made to the structure set in place following the 2010 Corporate tax road map. So, it is largely crystal ball time.

The contrast between the UK and the US over the past ten years or so has been revealing. The US obviously has by far the stronger economy, but the balance of taxation there is very different from the UK. Individual taxes are lower, whilst the domestic corporate income tax rate is amongst the highest in the world.

In order to help US multinationals expand abroad, deferral has enabled US multinationals to structure their groups and reinvest foreign profits without paying top up taxes in the US. The distortions that has created are, of course, what has largely lead to the BEPS initiative. And the threat of the eventual taxation of overseas earnings, coupled with the ability for foreign companies to gear up on US operations and mitigate the impact of the high domestic tax rate, has given rise to a spate of inversion.

The UK is a much more open economy (partly by nature, but largely because of the EU freedoms) and so it has not wanted, or been able, to lock its corporates in.

Instead, therefore, the last Labour government and the Coalition had to come up with a package of measures that would not leave UK multinationals uncompetitive; nor could they risk losing out on growth opportunities by acquisition or being themselves acquired by multinationals based in jurisdictions (like the US) with more benign regimes for taxing foreign profits.

Although not explicitly stated, that package also had to comply, of course, with CJEU decisions in the EU freedoms area: so Cadbury Schweppes made CFC reform inevitable; and the FII GLO did the same for dividend exemption.

In the UK, the yield from income tax, national insurance and VAT is much higher than the corporate tax yield. Therefore, the recent multinational furore aside, the political impact of corporate tax changes are much less than they would be in the US, where the legislative process is log jammed because they don’t have VAT and corporate tax reductions – done at a political cost because of the impact on voters.

Recent governments in the UK have understood that business creates jobs and so, in turn, drives the yield from personal income and spending taxes.

So, that’s why – apart from the CT rate only going down to 21% under Labour and whatever changes BEPS may produce, most likely of course things in the hybrid area and on interest restrictions – we shouldn’t expect many changes in the business tax arena after the election, whichever complexion of government gains office.

All the views above are personal opinions and do not necessarily reflect employer organisations.