In BDO’s view, the UK tax system should incentivise owners and managers to sustainably grow businesses over the longer term and should encourage export-led growth by rewarding investment in both capital and labour within a framework that is fair and which provides certainty for all taxpayers.
The following are BDO’s predictions for what the Chancellor may announce in the Autumn Statement on 5th December, although tax announcements may be delayed until the Budget next year to time with manifesto plans for the next general election.
1. Employers’ National Insurance rebate or holiday
To encourage exporters to grow and take on new workers, the Chancellor may give in to lobbying in this area to reduce employers’ national insurance costs either by way of a rebate or holidays. Recent surveys have indicated that a reduction in employers’ national insurance is the number one recommendation from businesses to encourage them to take on new workers.
2. Introduction of tax relief for expenditure on buildings used for trading purposes
The UK tax system compares unfavourably to our European competitors when it comes to tax relief for buildings used for trading purposes, significantly reducing the competitiveness of UK manufacturing businesses. We would like to hear the Chancellor consult on how he could level the playing field by considering a reintroduction (ie to replace the former Industrial Buildings Allowance) of tax relief for expenditure on buildings used for trading purposes.
3. Increase in the standard rate of VAT
If further tax reliefs are to be given, increasing the standard rate of VAT is likely to be the easiest way of raising substantial tax revenues to balance the books [£4.75bn per each 1% rise (per HMRC)]. Many EU countries have higher standard VAT rates than the UK and a small rise would not cause the UK to look out of line with our continental neighbours. Any VAT increase may come with an announcement of a reduced VAT rate for the tourist industry to stimulate demand in that sector.
4. Higher taxes for the energy industry
As currently applies to the oil industry and to combat Labour’s call for a price freeze for energy costs, we would not be surprised if the Chancellor announced an immediate introduction of a higher corporation taxes for energy businesses. While such a tax would be unlikely to raise a material amount of revenue, it would undoubtedly be popular with the voters ahead of an election.
5. No unilateral UK action likely to be taken on the topical issue of the taxation of multinational businesses
The Organisation for Economic Co-operation and Development (OECD) has been tasked by the G20 with looking into the taxation of multinational businesses that operate across borders with a view to preventing profits being shifted to low tax countries. Unlike some other countries, we think that it would be unlikely that the UK would act alone to change the current UK tax system for the taxation of international businesses before the OECD has reported back.
6. Removal of higher rate income tax relief for pension contributions
Often speculated about but never acted on, it would be an easy revenue raiser to remove higher rate income tax relief for pension contributions. Hitting the higher earners, the timing of this may now be right for the Government to weather any political backlash.
7. Merger of approved share option schemes
Following the review by the Office of Tax simplification, we expect the Chancellor to announce that the two existing HMRC approved share option schemes, EMI and CSOP, will be merged in to one scheme. Such a change would be a welcome step towards a more certain system for businesses when they consider how to incentivise key individuals to grow the business by way of an equity reward.
8. Removal of the 5% condition to access Entrepreneur’s Relief
In recent years, there have been many changes to the ways individuals can access favourable rates of capital gains tax in addition to the long standing Entrepreneurs Relief (‘ER’). As it stands, individuals who acquire shares under an EMI scheme or by way of the recently introduced Employee Shareholder Status scheme are not subject to the same requirements to hold at least 5% of the shares in a trading company before tax reliefs kick in. In the spirit of fairness and to reward all employees who risk money investing in their employing companies we would like to see the removal of the requirement to hold 5% of the shares before ER is available.
9. No changes to income taxes
With the personal allowance already set to hit the landmark £10,000 rate next year (as previously announced), we are not anticipating any further significant changes to personal allowance bands and rates. The impact of this will be that fiscal drag (the process by which tax bands do not keep pace with inflation) will continue to pull more and more individuals into the higher rate of income tax when they have what would once have been considered modest incomes. A reduction in the 45% highest income tax rate is likely to be politically damaging until after the next election.
10. Further announcements on tackling offshore tax evasion and non compliance
We expect a continued focus on ‘tackling offshore tax evasion and non-compliance’, in particular the announcement of further automatic information exchange agreements with countries where it is believed individuals and entities may be ‘hiding’ money (recent agreements have been made with many tax havens). The Chancellor may also make an announcement on how to tackle outstanding disputes on tax avoidance schemes where tax remains uncollected and thousands of cases are listed for Tribunal. The Public Accounts Committee has been very hot on this topic.
