Tax and regulation policy briefing

The Conservative candidates have been using June to promise significant amounts of cash to win over the hearts and minds of party members, from radical cuts to the headline rate of corporation tax, increasing income tax and National Insurance thresholds to relief for high street businesses from the burden of business rates. At the time of writing, these promises on tax policy add up to something in the region of £20bn per year. This is before other commitments on spending for police, social care and other public services are included.

Only time will tell as to whether these campaign promises can and will be delivered. Undoubtedly, officials in the Treasury will be concerned about how they will make the spreadsheet add up at the budget later this year. For business the main concern will be the growing belief that a no-deal Brexit can be managed with significant tax cuts, which economic evidence suggests is not the case. The other concern for business will be whether the money to pay for these headline promises will need to be found from taxes on business in the future. We will need to see where we end up when the dust settles and a Conservative leader, and new Prime Minister is in place. In the meantime, the CBI has been talking to candidates, MPs and civil servants about the issues that matter most and the blockers to investment and growth.

CBI gives evidence to parliament on the business rates bill

Parliament is currently considering the Non-Domestic Rating (Lists) Bill 2017-19. At the time of writing, the bill is in report stage in the House of Commons. This bill delivers on a key CBI win from our business rates campaign. It implements a shorter revaluation cycle, from five to three years, and brings forward the next revaluation to 2021. This will allow business rates to be more responsive to changes in business rents, improving the fairness of the tax. This will allow businesses to plan better and should help alleviate some of the risk of significant changes of valuation from period to the next, as was seen in the 2017 revaluation.

The CBI was asked to provide oral evidence to the Bill Committee on the impact this bill would have on business. This was a great opportunity to highlight the CBI’s campaign on business rates, including the need to continue to discuss the possibility of annual revaluations, the removal of downward transitional relief and action on partially occupied relief.

Funding our future campaign continues to drum up political interest

Building on major engagements with City Minister, John Glen MP, and Andrew Bailey, CEO of the FCA, the CBI’s Funding our future campaign has continued with a roundtable with Nicky Morgan MP, Chair of the Treasury Select Committee. Members shared their thoughts on how we can help this critical sector work better for business by putting customers first, maintaining a global horizon and embracing innovation. Nicky Morgan commented on how the TSC value the unique whole economy perspective of the CBI on these issues. Sam Woods, CEO of the Prudential Regulation Authority will be participating in a CEO-level Funding our future roundtable on 17 September.

Major breakthrough on strong customer authentication

The team has had a major win on strong customer authentication (SCA) - technical payments measures to tackle online fraud that were set to cause major economic disruption come September. The CBI worked with UK Finance, the British Retail Consortium, FSB, IOD, Vendorcom and key retail and e-commerce members to ensure the UK’s FCA fully understood the potential economic impact had they insisted on full regulatory compliance on 14 September. We then secured their agreement to find a route to a period of forbearance to mitigate such economic risks. This strong UK position then paved the way for action at EU level and on Friday 21 September, the European Banking Authority stated that authorities in Member States can set their own forbearance periods beyond the hard deadline. This will ensure that members across a number of sectors including retail, travel, leisure and hospitality do not face the risk of revenue losses. It was estimated that compliance on 14 September could have seen about one third of e-commerce transactions declined in the UK.

UK CFC rules update, an indication of the UK’s reaction to the EU’s state aid decision

In June the Treasury wrote to the CBI (and other interested parties) to confirm that they have sought an annulment of the European Commission’s State Aid decision regarding the UK Controlled Foreign Company (CFC) rules. Early confirmation of whether the UK government would seek an annulment of the decision and details of that appeal is one of the areas the CBI called for, in a letter they wrote to HMRC (and HM Treasury), to assist business in reducing uncertainty. Clarity from government that they have sought an annulment, and the details on which this appeal was based, is an important first step in providing clarity to businesses to assist them in quantifying their potential liabilities. This in turn aids businesses in managing their tax position, including provisioning for financial reporting purposes and ensuring funds are readily available to meet their cash tax obligations. The CBI will be meeting with HMRC in the coming weeks to discuss the wider content of the CBI letter and other areas where additional clarity can reduce uncertainty for business.

Interacting with the Telegraph on the UK’s proposed Digital Services Tax

What to expect from the month ahead

July will see the end of the Conservative leadership contest and most likely the announcement of a new Chancellor of the Exchequer, as well as their entourage of junior ministers. We hope that this will also prompt a lift in some of the fog surrounding the upcoming spending review and budget process. We may finally see an answer to the question of whether to expect a three-year spending review or one-year technical rollover.

International tax dialogue warms up as Pascal Saint-Amans joins the CBI Taxation Committee

As mentioned in May’s tax and regulation policy briefing, Pascal Saint-Amans joined the CBI Taxation Committee in June to talk about the OECD’s work on tackling the tax challenges of digitalisation. It was clear from his comments that the OECD are keen for businesses to come forward with workable proposals to help unblock the political impasse that is developing between the US, EU, UK and other countries’ proposals.

In July the CBI’s work on the OECD’s proposal starts to pick up pace. We will be participating in Business at the OECD’s working groups on the work plan and its pillars. This is a forum to bring together businesses operating across all OECD countries to see if a consensus can be reached within the international business community, if not the political one. The CBI represents the views of all our members in the UK in this forum. Get involved in our work on the taxation of the digitalisation of the economy.

July’s Tax Committee will see Bill Dodwell, Director of the Office for Tax Simplification (OTS) attending as our guest speaker. This will be a great opportunity for members to hear directly from Bill about the OTS’ priorities and feed in business views on the current challenges with our tax legislation and administration.

Opportunities to join the CBI’s working groups on tax policy

July will see the latest round of our working group meetings, including on business rates and employment tax. We will also be hosting a roundtable with HMRC on the handover process they use for their large business Customer Compliance Managers (CCMs). A key recommendation of the CBI’s In Need of Reset report, was that HMRC needed to look at improving the functioning of their CCM model, including the handover process when CCMs changeover. This workshop will be an opportunity for HMRC to report back on an internal review they have conducted on the back of our recommendation, test their ideas with members and work constructively to get the right process in place.

Finance Bill will give some clarity on key business tax issues

The draft Finance Bill is due to be published on 11 July. This will set out the government’s legislative approach for tax measures that are due to come in from April 2020. The government will run a consultation on the Finance Bill over the summer before the final bill is published following the Autumn Budget. We are expecting the Bill to contain draft legislation on the implementation of off-payroll working rules in the private sector. The CBI responded to HMRC’s recent consultation on this issue, calling for a further delay to implementation as well as a complete and comprehensive impact assessment.

The bill is also likely to include draft legislation on the UK’s proposed Digital Services Tax. Again, the CBI has been actively engaging with the Treasury on this proposal and will be meeting with them shortly after the legislation has been published.

When we speak to policy makers on the issues that matter, we are championing the voice of business. Explore all the different ways you can help shape our policy position on tax and regulation.