Tax and regulation policy briefing

March Budget, the count-down is on

With only days to go before the new Chancellor stands up to deliver this government’s first Budget (not to mention the first Budget in almost 18 months), the media rumours are in overdrive about what we may see.

But, so far, there is still a significant amount of uncertainty, in particular around the fiscal rules and whether the government sticks to the new framework set out by Sajid Javid only a few months ago. A simple guide to the fiscal rules can be found here.

It’s now almost certain that this Budget will have a significant element of the government’s response to the continuing COVID-19 outbreak, including any potential economic policy measures to mitigate the impact of the virus so far. However, with little data currently available on the economic impact of the outbreak available, the government may wish to limit its actions right now and act to reassure markets through the speech itself.

There will be immediate updates on the Budget on My CBI on 11 March after the Chancellor has delivered his Budget. You can find out what the CBI called for in its submission here.

Clarity provided on the implementation of IR35

Following our update last month, the government has now published the outcome of its latest review into the implementation of off-payroll working (IR35) rules.

Earlier in the month the CBI gave oral evidence to the House of Lords sub-committee on the finance bill, raising concerns that businesses were still waiting for clarity on this significant change in policy.

The conclusion of the review brings news that will be sobering for some, the reforms will come into effect from April, putting an end to speculation that a further delay could be announced at the Budget in March.

While the reforms are a far cry from an ideal outcome the review has made concessions in a few key areas. Most notably a commitment to focus on communication and education of those businesses and individuals affected by the reforms. The review also addresses several other points the CBI have been calling for over how HMRC intends to operate the reform in practice including simplification of the commencement criteria for the reform which, by referring to services provided from 6 April 2020, provides greater certainty (and in many cases a little more time) over when to operationalise the reform from. Also, defined time limits for contractors to dispute clients’ determinations removes the risk for business of the possibility of open-ended timeframes for disputes. HMRC have also committed to reviewing the impact of the policy in six months’ time.

You can read the CBI’s full download of the review and what it means for business here.

Government confirms review of business rates

After being delayed due to the General Election the government has now responded to the Treasury Select Committee’s (TSC) inquiry into the impact of business rates on UK businesses.

The CBI fed into the inquiry in 2019 and the influence of our members can be seen throughout the TSC’s report. Now the government has accepted a number of the TSC’s recommendations, including:

• Committing to a fundamental review of the business rates regime, a longstanding CBI campaign ask
• Considering the TSC’s recommendations on transitional relief, another CBI recommendation from our 2018 Budget submission
• Committing to provide guidance to local government on the use of business rates reliefs, another CBI recommendation from Budget
• Consider the role of business rates in their review of the costs of meeting the net zero carbon emissions reduction target.

This is hugely encouraging news and businesses will hope this can be turned into action at the Budget on March 11 and in the weeks and months that follow. You can read the CBI’s full run down of the response and what it means for business here.

The CBI responds to the OECD on Country-by-Country reporting

Early February saw the OECD release a consultation document on the review of Country-by-Country Reporting (CbCR) requirements. The CbCR requires multinationals, with a consolidated group turnover of €750m or more, to annually provide aggregate information in each jurisdiction in which they operate information relating to the global allocation of income and taxes paid. This requirement has been in place since 1 January 2016.

The OECD consultation is comprehensive and a large part of it focuses on the potential expansion of reporting requirements, which raises concerns for businesses over the additional administrative burden the provision of this information could place on business – the CBI response highlights the importance of ensuring that any requirement to include any additional information is considered in light of the purpose of the CbCR (being a high-level transfer pricing risk assessment document), with clear evidence that it would provide material benefits to tax authorities.

Annie Gascoyne, Director of Economic Policy at the CBI, commenting on the government’s review of IR35:

“After months of consultation on IR35, businesses will welcome the fact there is now finally some clarity on the situation. HMRC have clearly listened to business and recognise how vital it is to educate and communicate with those who might be affected however, for many this comes very late in the day.

"The six-month review will be an important marker to test whether the policy is having the desired effect. It’s important that the review includes a full and comprehensive impact assessment, properly assessing the admin burden for business and the impact on labour market flexibility.

"This policy cannot be the end of the road. There have been too many sticking plasters over the years and a holistic review of the employment tax system needs to be undertaken at the earliest point practical.”

Office for Tax Simplification review into claims and elections

The OTS has kicked off a review on the potential to simplify claims and elections and the processes involved.

Claims and elections are a long-standing feature of many UK taxes. In some cases, it is unclear why there is a need to make a specific or separate claim or election in order to benefit from a relief or exemption, and this can lead to some of those who are entitled to benefit missing out.

The review will seek to establish the broad numbers and types of claims and elections across the main UK taxes, and then focus on a range of the claims and elections that are more significant or more frequently used by individuals, partnerships and companies.

The work will be primarily concerned with how the administration of these claims and elections may be simplified, but where relevant may also consider related policy issues.

The CBI met with the OTS to discuss this review and their wider workplan for 2020. We raised concerns members have been having with the administrative processes around claims for the R&D tax credit in particular. We are now arranging a roundtable between businesses and the OTS to go into these issues in more detail and will respond to their review. Get involved with our work on this issue.

Opportunity to engage with the Bank of England on climate stress tests and data collection in financial services

The Bank of England published a discussion paper in December 2019 setting out a proposal to stress test UK banks and insurers for climate-related financial risks. Stress testing the banks and insurers requires them to model the financial risks of their customers across the whole economy. The Bank is very interested in the views of companies across sectors about this work and keen for this work to be replicated in other countries. As a result, the CBI is arranging a roundtable on 25 March 2020 (15:00-16:30) to be held at Travers Smith LLP, 10 Snow Hill London EC1A 2AL. This event provides an opportunity for you to hear more about the Bank’s proposals, ask questions and provide feedback.

Sarah Breedon, Executive Director UK Deposit Takers Supervision, Bank of England will co-chair the session alongside Flora Hamilton, Director, Financial Services, CBI with input from our Chief Economist Rain Newton-Smith.

If you are interested in attending this event please get in touch.

We will also be hosting a second roundtable on 18 March, 9.30-11am at Reed Smith. The discussion will focus on the Bank of England’s discussion paper on transforming data collection from the UK financial sector. This paper explores the use of regulatory data over the next decade and seeks ways to decrease the burden on the industry and to increase the timeliness and effectiveness of data in supporting supervision. As part of their stakeholder engagement, the Bank is interested in speaking to individuals who can represent their organisations’ views on regulatory reporting, technology and data.

If you are interested in attending this event please get in touch.

Get involved in our sustainable finance campaign

The CBI is increasing its work around sustainable finance, particularly looking to raise awareness across sectors of the need to take into account the full

ESG spectrum when making business decisions. Last year, we released our green finance position paper which attracted large interest from the industry and policymakers. We will now be looking to extend our messaging to include social and governance matters to develop our sustainable finance position.

In the lead up to November’s COP26 in Glasgow, we will be supporting the UK as the world’s most open and connected international financial centre and leading centre of sustainable finance expertise. In the run up to this we hope to release a CBI sustainable finance position paper which will focus on the importance of clear definitions regarding ESG and explore how policymakers should measure the cultural and social impact of business decisions. The CBI is setting up a virtual working group to support the development of this paper. Find out how to get involved.