- The CBI chevron_right
- Tax and regulation policy briefing
Tax and regulation policy briefing
Unpacking the latest developments in tax and regulation policy in a busy month of engagement and CBI policy wins.
Work across the full range of tax and regulatory issues faced by business hits its stride in May
Politicians in Westminster and Europe may have been focussed on local and European election results last month, but our work on tax & regulation on behalf of our members never stops.
A time to speak out on the broken business rates system
May saw the delivery of a key milestone in the CBI’s business rates campaign, our landmark business rates conference. Our members are constantly telling us of the increasing burden business rates is putting on their businesses, limiting their ability to invest and grow. The conference was an opportunity to bring together policymakers, firms, academics and politicians to address the challenge head on and raise the profile of this issue in the media. CBI President, John Allan, provided the opening address, emphasising why reform of the business rates system cannot come soon enough. This made a great splash in the media: from interviews on BBC breakfast and the Today Programme to coverage in major news outlets including the FT, the Guardian and the BBC. The media attention prompted a response from the government and our meeting with the Treasury team after the event demonstrated a change in tone from our previous engagements. It now feels like momentum is really building and change to the system is well and truly on the table.
The conference had a fantastic line-up of speakers, including Mel Stride (then Financial Secretary to the Treasury), Catherine McKinnell, member of the Treasury Select Committee, Enid Slack, a foremost specialist in international property taxation and many others. You can five key takeaways from the conference
But our work on this critical issue doesn’t stop there. In the same month we met with the Treasury to follow up on messages from the conference and hosted our member working group, which included a roundtable with the Treasury Select Committee (TSC) clerks on their current inquiry. This was a fantastic opportunity for members to give direct feedback on the current system and how it could be reformed ahead of the TSC publishing their recommendations in the autumn.
CBI responds to government consultation on extension of IR35 rules to the private sector
At the 2018 Budget, the government announced that they would be changing the tax rules for people working through personal services companies (or off company payroll). The original set of rules (commonly referred to as IR35) were seen to be ineffective with many workers still failing to comply, resulting in significant unpaid tax. The new rules that were proposed made it so that companies using off-payroll workers would now be responsible for ensuring the right amount of National Insurance and Income Tax was paid, rather than the individual themselves. This change has already come into effect for public sector bodies, but government are now consulting on extension to the private sector.
The CBI has continued to warn the government that extending these reforms to the private sector could significantly increase the administrative burden on businesses. Whilst the intention of the policy, to reduce personal tax avoidance, can’t be argued with, the current approach proposed by government asks businesses to act as the tax police for their supply chain, creating legal uncertainty and cost.
In May, the CBI submitted its response to the latest technical consultation on this issue. In it, we called for a further delay to implementation and for government to conduct a full impact assessment of the changes already made in the public sector and potential changes in the private sector. This will be critical to ensuring the benefit to government is reasonably balanced against the burden on business.
We have also been working closely with HMRC on the Check Employment Status for Tax (CEST) tool which they have designed to help companies and individuals make tax determinations. Many members feel the CEST tool doesn’t correctly capture the necessary determining factors for tax status. This means few are willing to rely on it, leaving them uncertain of which of their workers and suppliers should be captured by the IR35 rules. This month the CBI held a roundtable with HMRC to talk through and feedback on their new CEST prototype. This was followed by another roundtable to discuss the improvements they’d made following member input. It’s great to see HMRC listening to member input on this and taking action to improve the tool.
Recommendations from Funding our Future accepted by the Financial Conduct Authority
In 2018, the CBI published its landmark report Funding our Future, which set out the case for an agile and robust regulatory and tax regime for UK financial services. The report brought together evidence from over 80 financial services firms from across the UK.
In May this year, we welcomed Andrew Bailey, CEO of the FCA, to a roundtable with CBI members. This gave members the opportunity to feedback to Andrew directly on the current regulatory environment and highlight some of the key messages from Funding our Future. We were then delighted that in his speech at Bloomberg, he set out a new approach that put customers first. This will allow businesses to increasingly use technology to deal with compliance issues, alleviating the burden within financial services firms. This very much reflects the core messaging from Funding our Future.
Elsewhere on financial services regulation, the CBI raised concern of the potential harmful economic impact of implementation of Strong Customer Authentication (SCA). Payment fraud losses have been steadily increasing for nearly a decade with little sign of easing. The European Commission has intervened by placing SCA requirements on participants to reduce fraud as part of its Payment Services Directive. From September this year, the expectation is that all e-commerce transactions will be processed by secured industry protocol such as 3D Secure. However, many businesses are unaware (less than 10% of merchants) of the impact this will have on their business model. This month the CBI coordinated a letter, working with other business groups, highlighting the need for a flexible approach from the FCA.
The CBI has previously called for the Payment Systems Regulator (PSR) to consider a more flexible deadline for the implementation of Confirmation of Payee. The Confirmation of Payee system will mean that anyone making a payment will be alerted if the name they use does not match that of the account. This is to help cut down on scams where individuals are conned into sending money to the wrong account. This is a complex change to banks’ IT and processing systems and needs time to be implemented properly. The PSR has this month confirmed that it has changed the timeframes for full implementation from summer this year to March 2020, following input from industry to their consultation. This will allow businesses to be better prepared to fight fraud and for consumers to better understand the changes being made.
OECD make a move to unlock international discussions on the tax challenges of digitalisation
The debate on how to reform the international corporate tax framework in response to the increasing use of digital technology and digitalised business models continues.
As highlighted which acts as a roadmap to finding a consensus-based solution to this challenge. The new timeframe for delivering a comprehensive consensus-based solution was set as the end of 2020. This is extremely ambitious given the division of opinion across OECD countries, and will require an early political steer as well as resolving the detailed technical issues. The programme of work includes detailed consideration of how losses will be treated, acknowledgement that the current dispute resolution mechanisms may not be sufficient for the proposed reforms and the interaction between new taxing rights and the existing taxing right. These were also points raised by the CBI in our submission to the consultation.
The CBI has been continuing to work with stakeholders to find consensus and build support for the business view on this important issue, including meeting with the US Embassy. This discussion focussed on the UK’s Digital Services Tax – a short-term measure whilst international consensus remains elusive. It was a great opportunity to update them on the views of this policy from businesses operating in the UK, but also to identify areas of common interest and future cooperation.
Elsewhere on international tax, late April saw the European Commission publish its full decision on the state aid ruling of the UK’s Controlled Foreign Company (CFC) rules, declaring part of the relief as illegal state aid. The CFC rules are anti-avoidance provisions designed to prevent diversion of UK profits to low tax jurisdictions. Up until the EC’s ruling the UK had an exemption for certain financing income of multinationals active in the UK. Several businesses are likely to be affected by this decision, having used the exemption on financing income in the past. HMRC will now have to recover the state aid and the government will need to consider whether to appeal the decision. This decision creates uncertainty for businesses (alongside a potentially significant financial cost). The CBI has already engaged with HMRC to outline those areas where clarity would help businesses to reduce this uncertainty, allowing them to effectively plan their company financial position.
Activity on Labour’s inclusive ownership proposals ramps up
Finally, the CBI held another working group with members to discuss our response to the proposals from Labour to establish an inclusive ownership fund. In 2018 the Labour Party announced that if it were to come to power it would introduce the IOF, requiring companies with over 250 employees to transfer 10% of their company ownership into the fund. This policy presents significant risks to the UK’s investment environment, on top of Labour’s nationalisation plans.The group agreed that the CBI should think broadly about the alternatives to this proposal, including current tax incentives for employee share ownership and Individual Savings Accounts. We met with the Treasury to discuss the current limitations of employee share schemes, including their attractiveness to employees on low incomes and private businesses.
Get involved with our work on inclusive ownership.John Allan, CBI President, addresses the CBI’s business rates conference
“The business rates system has – over time – become uneconomical, unsustainable, and frankly, unintelligible. In short, it’s a system in need of reform.”What to expect from the month ahead
May was a busy month across a whole range of tax and regulatory issues that CBI members regularly raise with us. June promises no let-up in activity.
Bumper engagement opportunities on financial services, tax policy and spending review
In June, the CBI will welcome Katharine Braddick, Director General Financial Services, HM Treasury, to our Financial Services Council. This will be a great opportunity to discuss the future of financial services in the UK including hot regulatory topics.
The appearance of Pascal Saint-Amans, Director for the Centre of Tax Policy and Administration at the OECD, at the CBI’s monthly Taxation Committee could not be timelier. This will be a great opportunity for members to quiz Pascal on the OECD’s Programme of Work.
The CBI also recently met the Treasury to discuss the upcoming spending review. The timing and length of the spending review, a process which sets central government departmental spending over a multi-year period, remains highly uncertain. The recent resignation of the Prime Minister and subsequent race for the Conservative party leadership makes it more likely that there will be a one-year roll-over of spending with a full review next year. Please share your views on the CBI’s Spending Review work.