Business tax – what are we expecting in the Budget?

21st November, 2017

Corporates

The Government may release its conclusions on extending corporation tax to non-resident companies – currently such companies are subject to UK income tax on UK income if they do not have a permanent establishment here, but bringing them within the corporation tax regime would enable the loss relief rules and interest barrier to be applied without extensive re-writing of the income tax legislation.

VAT

The VAT elephant in the room is the recent Office of Tax Simplification (OTS) review of VAT simplification. Among other suggestions, the OTS recommended decreasing the VAT registration limit to match other European countries at €45,000 (around £40,000). This would have a huge impact on UK businesses, especially in the current uncertain climate, however the OTS regards the current limit as a barrier to growth as it believes many SMEs are put off from expanding by the current (£85,000) limit.

The OTS also said that a review of the threshold for the application of the capital goods scheme relating to land and property was needed, as well as exploring alternative ways of removing the need for businesses incurring insignificant amounts of input tax to carry out partial exemption calculations. It also called HMRC to improve the clarity of its VAT guidance and to reduce uncertainty and administrative costs for business relating to potential penalties.

It indicated that the Treasury and HMRC should undertake a comprehensive review of the reduced rate, zero-rate and exemption schedules and consider further ways to simplify partial exemption calculations and to improve the process of making and agreeing special method applications. In addition, HMRC should also review the current requirements for record keeping and the audit trail for options to tax, and evaluate if this could be handled online.

Stamp duty reform

In July 2017, the OTS reported back on its review of stamp duty.

Its core recommendations, which are intended to be implemented as a single package of process and legislative changes, are to:

  • Introduce online submission and the issue of unique transaction references (UTRs) confirming submission to replace paper stamping, and short form notification (removing compulsory adjudication) for claiming group relief or reconstruction relief, with equivalent reliefs being introduced into SDRT to prevent the need to create a stampable document purely to benefit from relief.
  • Change company registrars’ rules to facilitate same day registration using the UTR or confirmation of notification.
  • Make stamp duty an assessable tax to eliminate ‘voluntary’ compliance (that is, stamping only when needed for UK registration or when documents are used in civil proceedings or for other legal purposes).
  • Abolish the rule that requires the amount of stamp duty payable to be rounded up to the nearest £5.
  • Narrow the scope of stamp duty (in line with SDRT) to reflect the transactions it applies to in practice, for example, by excluding transfers of non-UK shares.

The core recommendations also include suggestions that HMRC considers, as a matter of policy, whether stamp duty should continue to apply to transfers of interests in partnerships, the grant of options for consideration, and transfers under agreements that were executed before 1 December 2003.

Further recommendations

The report also proposes technical simplifications, either for simultaneous or future implementation, including:

  • In respect of chargeable consideration, to:
    • Replace the current method of calculating stamp duty on contingent, uncertain or unascertainable consideration, with one similar to SDLT (based on reasonable estimates with subsequent adjustment)
    • Change the definition of ‘chargeable consideration’ (which includes only cash, stock, marketable securities and debt), to ‘money or money’s worth’, in alignment with SDRT and SDLT, and
    • limit the value of debt consideration to the market value of the shares
  • Repeal the current legislation, and bring together stamp duty and SDRT legislation in one place
  • Uprate the exemption from stamp duty for transfers with chargeable consideration of £1,000 or less.

There have also been a number of calls for the Chancellor to lighten the stamp duty land tax burden on first time buyers, however, any ‘tax giveaways’ will need to be balanced by increased revenue from elsewhere.

Employment status

There may be an announcement about the taxation of different forms of working, following the publication of the Taylor Review earlier this year, including:

  • Consultations to evaluate the Taylor Review recommendations
  • An announcement on the Government’s strategy to tackle the growth in self-employment and single person incorporations
  • In addition, a money raising measure, likely to be promoted under the guise of fairness, would be to extend the requirement for public sector bodies to withhold tax and national insurance from contractors to the private sector.

Compliance

We expect to see further measures on offshore and onshore compliance, including draft regulations governing existing penalties. In light of the recent paradise papers news, we may also see further moves towards greater transparency, and possibly a requirement to register offshore structures with HMRC.

The Government is also intent on tackling the hidden economy and we may see moves to make access to business services or operating licences dependant on being able to provide a genuine taxpayer reference.

The government is also expected to release further details of its extension of the disclosure of tax avoidance schemes rules to VAT.

Making tax digital

The Government has yet to confirm the level below which digital reporting will not be needed. The amount originally suggested – £10,000 – is far too low and the accountancy profession has been lobbying for an increase to a more sensible level. We hope that a figure will be confirmed next week.

The Government may also release details of its finalised proposals for late filing and payment of tax under MTD, as well as a consultation on proposed penalties for inaccuracies in MTD returns.

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