Tax and regulation policy briefing

The Budget that was, and then wasn’t

October has seen the government announce its intention to hold a Budget on 6 November and then cancel it due to the imminent general election in December. This sort of flip-flopping doesn’t help business certainty in a time where it is in short supply, but it’s also not totally unexpected given the on-going challenge of Brexit.

For business the postponement of the Budget, which will now most likely take place in the new year, means two things. First, a lost opportunity to see important government decisions taken on critical issues from the national infrastructure strategy, the R&D roadmap to the future devolution framework and reform of the business rates regime. Second, it throws into the air the timing of the Finance Bill which usually gets laid before parliament in the Autumn so that it can receive Royal Ascent before the start of the next tax year, on 6 April. It’s now likely that this too will appear in the new year, giving businesses very little time to scrutinise, understand and comply with the new legislation before it comes into force. It’s also possible that the legislation might not receive Royal Ascent before the sixth meaning it applies retrospectively when it does. An unwelcome return to the days of Spring Budgets rather than Autumn ones.

For its part the CBI has continued to press government on the issues that matter to business. Even though it is not clear when the vehicle for delivering change will arrive, it’s still vital that we continue to make our message heard, whoever the next government might be. In October we sent a detailed submission to the Treasury on business priorities, and Dame Carolyn Fairbairn wrote to the current Chancellor Sajid Javid. After several months of member consultation three key objectives emerged:

• Protect the UK’s international competitiveness
• Accelerate the vision for the UK economy
• Give businesses breathing space from the rising cost of tax and regulation

This covered recommendations from reforming the broken business rates system, to implementing necessary policies to move to a low carbon future and widening the scope of the R&D tax credit.

These priorities will form a key part of our campaigning work over the general election period and we will keep our eyes peeled on your behalf on how many of these recommendations make it into political party manifestos.

The OECD make a move on the tax challenges of the digitalisation of the economy with a unified proposal

After months of extensive consultation with stakeholders (including governments, businesses and NGOs), on 9 October 2019 the OECD Secretariat released a proposal for a ‘Unified Approach’ on Pillar 1 of their Programme of Work: to develop a consensus solution to the tax challenges

of the digitalisation of the economy.  Following this release, we welcomed HM Treasury officials to our October Tax Committee to give an update on the OECD’s proposals from the UK government’s perspective. We also attended the Business Europe Tax Committee, where we were joined by the OECD Head of Tax Policy for a Q&A session.

The wider programme of work also includes a Pillar 2, and whilst not the topic of this paper, it’s important to note that this pillar has not disappeared. An update on Pillar 2, which focuses on a global anti-base erosion rule to address scenarios which may enable multinationals to shift profits to no or low tax jurisdictions, is expected in early November.

The proposal stretches far beyond just impacting tech companies and focuses more broadly on multinational consumer-facing businesses, seeking to grant new taxing rights to jurisdictions in which consumers are located. With this comes the potential for these proposals to represent a significant shift in the taxation of multinational companies, including where they are subject to tax.

Over the coming weeks and months, the CBI will be providing the UK government and OECD with the views of business. If this is an issue that might affect your business then why not get involved.

CBI submits response to HMRC on DAC 6

After three months of extensive consultation with members we submitted our response to HMRC’s consultation on the draft regulations to implement an EU Directive known as DAC 6. From 1 July 2020, this will require taxpayers and their advisers to report details of certain cross border arrangements that could be used to avoid or evade tax.  EU member states are required to implement the EU Directive into law by the end of 2019, so we will be expecting an update from HMRC shortly.

Is pressure building on the next government to finally act on business rates?

In October we held our 5th business rates working group of the year. It was a chance for members to discuss how the political climate is impacting the prospect for real change in the business rates system. Having highlighted business rates reform as a key priority in our submission for the (now cancelled) Budget we now have a clear set of short-term recommendations as well as a longer-term position on reform. The group has been working on a clear set of principles for a reformed system of property taxation, including the idea of annual revaluations and self-assessment.

Businesses were initially sceptical of the administrative burden of self-assessment, but it is now clear, that with limited resources in the Valuations Office, it is the best way to deliver annual revaluations. While there are still a lot of unanswered questions and details that need fleshing out, it was concluded that this is something the CBI should explore further. Get in touch if you want to help shape the CBI’s on-going business rates campaign.

At the end of October we received a pleasant surprise as the Treasury Select Committee (TSC) published their report, following the inquiry into the impact of business rates on business. It has been a long wait with the report initially due out early September, but it is finally out and there is a lot of good stuff in there for business, including 17 mentions for the CBI. Most importantly, this report will help turn the dial on reforming a system that is outdated, inflexible and unsustainable.

It is great to see that the overall messaging of the TSC’s report is aligned to the CBI’s position and as a result, the report adopts four of the CBI’s recommendations. Taking a whole economy view of the challenge of

business rates is something the CBI has been pushing for, as well as emphasising the disincentive business rates has on investment. Business rates are often the tipping point for businesses’ investment decisions, putting at risk productivity enhancing investments and wider initiatives such as decarbonising our economy and rolling out full fibre to rural areas. The TSC’s focus on this in its report is welcome news for business.

We hope that the political parties will read the report with interest and adopt many of the recommendations in their own manifestos. It feels like public and political pressure has really started to build and now more than any other time there is a chance for real change.

CBI gets invited to a roundtable with the Financial Secretary to the Treasury on IR35

The CBI attended a roundtable with the current Financial Secretary Jesse Norman MP, to discuss on-going concerns around the implementation of off-payroll working reforms in the private sector. In the meeting we set out clearly the concerns of members with the speed of the reforms, that commence from April 2020, and the lack of guidance, availability of the updated CEST tool and final IR35 legislation. With the general election delaying the Budget it’s now clearer than ever that businesses aren’t ready, and a delay is absolutely critical.

HMRC have told us that they will provide us with its guidance prior to publications for CBI members to comment on. Get in touch if this is an issue you are concerned about for your business.

Joint CIOT and CBI annual conference brings together professionals to discuss the key issues affecting the future of the tax department

The CIOT and CBI annual conference was held on Wednesday 2 October. The Commerce and Industry Group annual conference focussed on the future of the tax department, including sessions on business risk review and cooperative compliance, taxation of the digital economy, the role of tax policy and how it affects legislation as well as practical lessons from Making Tax Digital.

Before you know it the CBI and CIOT will be planning next year’s conference. If you have ideas of subjects or speakers you would like to see at this event please get in touch.

The CBI highlights a growing concern with the payment and processing of R&D tax credit claims with HMRC

In recent weeks and months, we have been contacted by several businesses raising concern regarding the slow processing and payment of R&D tax credit claims. This feedback appears to suggest that slow processing of these payments is a growing trend for both the small or medium-sized enterprise (SME) Scheme and research and development expenditure credit (RDEC) claims.

Speedy processing and payment of R&D tax credit claims is vitally important for business cash flow. We have therefore written to HMRC to request that the resourcing of HMRC is reviewed in light of the current claim levels to ensure that the processing and payment of R&D tax credit claims are dealt with in a prompt and timely manner.

We have also asked for increased transparency around claim processing and better communication with businesses. If this is an issue that affects your business then get in touch.

CBI responds to the Treasury’s Regulatory framework review

The CBI responded to the call for evidence on Regulatory Coordination as part of HM Treasury’s Future Regulatory Framework Review.

This call for evidence is the first publication in a number of planned interventions by the Treasury to determine the long-term effectiveness of the financial services regulatory regime.

We called for a proportionate and targeted regulatory framework based on two key elements:

• A formal, collaborative framework that can improve coordination between regulators and firms.
• The development of a new forum with all major regulatory bodies to identify key ongoing projects that require a coordinated infrastructure.

The UK is a global leader in setting standards of regulation, and we see this regulatory review as a welcome step to make the current system more effective. The CBI will continue to engage with HM Treasury and relevant regulators on this topic. Contact us If you would like to get involved in this work.

CBI Director of Economic Policy Annie Gascoyne on the TSC’s inquiry into business rates:

“It’s good to see the Treasury Select Committee’s report reaffirming the CBI’s position that the business rates system is broken and in need of urgent reform. Business rates - in their current form - are outdated, inflexible and unsustainable. By including plant and machinery within the scope, business rates are often the tipping point for investment decisions, risking vital initiatives such as decarbonising the economy and rolling out full fibre broadband to rural areas.”

The Budget might be cancelled but that won’t stop the OBR

Despite the Budget being cancelled the Office for Budgetary Responsibility are keen to stay on the right side of the law by following through on their obligation to publish bi-annual forecasts. The Chairman of the OBR has written to the top civil servant in the Treasury setting out their intention to publish a restated version of their March forecast for the public finances on 7 November. Whilst not a full-blown forecast it will certainly put a cat amongst the pigeons during this election season as candidates competing to out-spend each other will have to explain how their commitments fit with sustainable management of the public finances.

The CBI will continue its work to cut through the political noise this Autumn/Winter and make the business voice heard. We will also continue to keep you updated on insight we get from Westminster. Continue to feed your views and concerns back to the CBI team.

Sustainable Finance remains a priority despite the political noise

The CBI team is now working actively on the next stage of our Sustainable Finance Project, following the launch of our CBI’s Green Finance Paper earlier this year.

If you have any information you would like to share, want to be considered as a case study or would simply like to find our more please get in touch.