OPINION | Tax Policy
entrepreneurs and foreign direct investors as, generally, one is a customer and/or supplier for the other. The UK economy has interdependent business sectors and must ensure that it becomes ever more globally competitive. We have to ensure our tax rates and reliefs are the most competitive in the G20, and also look at other competing countries outside the G20, for example, Luxembourg, Ireland and Singapore. My top tax issue is that it is imperative that the Treasury (with the necessary input from HMRC) examines the changes which will occur when the European Union’s Parent-Subsidiary Company Directive no longer applies to the UK, aſter which point we will need to fall back upon the provisions contained within the UK’s individual double tax treaties with each of the other EU member states. More oſten than not, changes to those treaties will not present any insurmountable hurdles but the speed of implementation of double tax treaties is oſten glacial. The risk is that, without such treaty changes, unnecessary taxes could arise upon UK subsidiaries and branches and it would be no comfort to UK business that the remaining members of the EU will be similarly, if not more, affected. Secondly, there is an opportunity to
examine how the UK’s freedom from the so-called ‘State Aid’ restrictions on targeted tax reliefs can be optimised. For example, our Enterprise Investment Scheme and Seed Enterprise Investment Scheme currently face restrictions from the European Union. Treasury Ministers should examine how these reliefs can be liberalised (from a business perspective) and democratised (from an investor perspective) to incentivise both business start-ups and scale-ups. Thirdly, whilst the UK government
will continue to support the proposals to combat aggressive tax avoidance by multinational corporations contained within the OECD’s/G20’s ‘Base Erosion, Profit Shiſting’ (or ‘BEPS’) project, there will be no need to adopt the additional measures contained within the European Union’s Anti-Tax Avoidance Directive (‘ATAD’), unless these are beneficial to the UK. This is particularly the case where supplementary complex rules would lead to further compliance costs for businesses. A sensible approach would include having regard to how the United States will implement the BEPS outcomes before signing off upon their implementation in the UK. On a similar
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theme, the UK should not consider it is under any obligation to adopt the EU’s proposed common ‘rulebook’ for the calculation of taxable profits subject to corporation tax; the so-called ‘Common Consolidated Corporate Tax Base’. Fourthly, in my view there are good
reasons why the UK should continue with Value Added Tax in its present form, certainly until well aſter Brexit has occurred. The advantage of VAT over alternative purchase taxes is that, with some notable exceptions, it does not impose an additional sales tax upon goods and services which have already suffered sales taxation. There are, however, a few areas which need more immediate attention. The UK should, post-Brexit, substantially raise the threshold for compulsory registration for VAT to well above the existing threshold (of £83,000) prescribed by the European Union. In my view, the compulsory registration limit should be increased to around £250,000 turnover per annum, thereby relieving most microbusinesses and
The UK
government should listen to businesses of all sizes and across all sectors, as
well as individual taxpayers, before determining its Brexit negotiation strategy
many small businesses from compulsory registration for VAT and cutting their filing and other compliance costs. Doing so would, incidentally, have no noticeable downside impact upon the remaining EU27; in fact, they should do the same. The UK may also wish to flex the existing requirements to standard rate some consumer goods, for example in healthcare, where there has been
Stephen Herring
a public demand to reduce the VAT currently applied. In addition, the EU VAT system focuses upon a Continental European model for the delivery of financial services (including insurance) and favours an ‘in-house’ back-office business model as opposed to the outsourced approach adopted by many UK-based entities. As a consequence, UK firms are unable to benefit fully from the VAT exemption for insurance etc. Rectifying this anomaly would be a sensible change post-Brexit and ought to result in reduced costs for UK consumers. Fiſthly, HMRC should look at the
European Court of Justice’s decisions currently binding the UK, to work out what the implications will be when we leave the EU and the ECJ no longer controls our domestic tax policies. Each decision should be reviewed on its merits without regard to generalisations made by either the Brexit or Remain camps. In some cases, the ECJ’s decisions will, with hindsight, be regarded as sensible whilst, in other cases, the decision should be overturned by, if required, UK tax legislation. In conclusion, the UK government should listen to businesses of all sizes and across all sectors, as well as individual taxpayers, before determining its Brexit negotiation strategy. Most importantly, it should maintain its flexibility in these negotiations, so that it can focus upon addressing the principal tax issues, whilst preserving its freedom for future bold tax reforms, including significant simplification for both businesses and individuals. Q
Stephen Herring is a Chartered Accountant and Member of the Chartered Institute of Taxation
DIRECTOR OF FINANCE 25
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