In her budget speech that contained the word ‘growth’ 31 times, Rachel Reeves confirmed the “government’s commitment to supporting growth and entrepreneurship” by introducing a 7-pillar strategy based on:

• Economic stability
• Increasing investment and building new infrastructure
• Local growth plans (developed with devolved authorities and mayors)
• Improve employment prospects and skills, making work pay and tackling economic inactivity
• Long term modern industrial strategy
• Funding for R&D to drive innovation
• Key investments in clean energy growth

Published alongside this, the Government sought to provide some welcome stability for businesses by introducing their Corporate Tax Roadmap for the remainder of this Parliament.

We agree with the Chancellor that a predictable and competitive tax system, alongside continued encouragement for investment, innovation and skills are critical to promoting productivity and growth in the UK economy after the disruption of recent years. However, employer taxes are also borne by businesses, and the increase in employer’s national insurance contributions by over £100bn over the course of the Parliament and the withdrawal of business tax relief for the hospitality and leisure sector will not aid the much-needed growth in the UK economy.

Corporate Tax Roadmap

While the release of the Corporate Tax Roadmap has not generated the headlines of other tax measures announced in the budget, it is important that companies understand what the corporation tax regime will look for the rest of this Parliament so that they can plan ahead. Key features include:

• The capping of the headline rate of Corporation Tax at 25%, as well as maintaining the Small Profits Rate and marginal relief at its current levels.
• The key features of the loss relief rules, deductions for borrowing costs, rules for tax relief on intangible fixed assets and the exemption for gains on disposal of substantial shareholdings will be maintained. These are critical to the UK’s pre-eminence as a location of choice for many holding companies so is a welcome move.
• All core features of the UK’s existing capital allowances regime, designed to stimulate business investment, including the 100% first year allowance on new qualifying plant and machinery and the 50% rate on new special rate plant and machinery, known as full expensing, the additional £1 million Annual Investment Allowance, writing down allowances, and the Structures and Buildings Allowance at 3% will be maintained.

The Government has also promised to explore how to simplify the capital allowances legislation and to provide greater clarity on what qualifies for different capital allowances, although the roadmap suggests a slower timetable will be adopted for simplifying the capital allowances system.

• Regarding R&D relief, the Government commits to maintaining the existing merged R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs (ERIS) at the current level (cash value £15-£16.20 and £27 on £100 R&D spend respectively).

The Government acknowledge the concerns raised by businesses over HMRC’s approach to scrutiny and administration of the reliefs. While HMRC’s figures, published alongside the budget, show their campaign is being highly effective in reducing error and fraud, we echo the Chartered Institute of Taxation’s concerns that ‘HMRC’s handling of R&D enquiries is resulting in valid claims being rejected and putting businesses through unnecessarily lengthy and costly enquiries’. These figures indicate that the number of valid claimants being driven away is significantly higher than the reduction in erroneous claims and we urge HMRC to address this.

The roadmap makes a range of commitments to improving the administration of R&D relief, in particular

1. An R&D expert advisory panel to assist HMRC to efficiently manage the R&D reliefs.
2. An R&D disclosure facility to allow taxpayers to correct historic errors; and
3. Aiming to reduce spurious claims by targeting agents who breach the agent standards.

• The audio-visual expenditure credit for film and high-end TV producers, and the video game expenditure credit will also be maintained at their current rates. The Patent Box will also remain in place.
• Continued commitment to engage with stakeholders to simplify business tax administration and address uncertainty, although very little in the way of set proposals other than the measures outlined for capital allowances and R&D.
• HMRC committed to introduce improved guidance and further digitalisation where it is acknowledged that their underlying corporation tax systems are outdated. Plans for this will be published next spring and taxpayers will be hoping that they are used as a springboard to free up manpower to improve current levels of ‘customer’ service rather than as a cost cutting measure.
• The roadmap notes that HMRC’s customer compliance manager model is regarded as the most efficient route to ensuring cooperative compliance, and they aim to explore ways to extend this. While interesting, it remains to be seen what impact this will have as the customer compliance manager relies on experienced inspectors serving the largest companies.

Consultations – What changes might be in Store?

A range of consultation are also introduced, and the key areas are set out below:

• On capital allowances, a consultation will take place regarding the tax treatment of predevelopment costs (costs incurred on the design and development of plant, before the making and constructing of it is ready to begin) and extending full expensing to assets bought for leasing or hiring.
• Consultation on the use of advance clearances for R&D reliefs, currently limited to new claimants, is also planned for early next year. These have not previously been popular, partly because the additional administration has proved prohibitive by the time that most new claimants decide to make a claim. However, given the additional perceived risk of making a claim, this may be an idea whose time has arrived.
• Reviewing the effectiveness of Land Remediation Relief.
• Developing and consulting on a new process that will give investors in major projects increased advance certainty about the tax that will apply.
• Consultation on reforms to the UK’s rules on transfer pricing, permanent establishments, and Diverted Profits Tax – including the potential removal of UK-to-UK transfer pricing, lowering the thresholds for exemption and introducing a requirement for multinationals to report cross-border related party transactions to HMRC. This follows an earlier consultation on the first of these. The Government will also review the treatment of cost contribution arrangements where the costs and benefits of developing intellectual property are shared between group companies.
• Considering opportunities for simplification of the UK’s rules for taxing cross-border activities in light of Pillar 2 (the minimum 15% effective tax rate). While welcome, no fixed areas for review have been highlighted as yet.

Conclusions:

Overall, the Corporate Tax Roadmap commits that little will change to corporate taxation over the life of this parliament, subject to the identification of any new issues or abuses. It acknowledges that it is vital the UK retains a competitive and sustainable corporate tax system in order to attract investment and argues that the current structure, base and rates achieve this. Taking this point in isolation, it does succeed in providing the stability and predictability that the Government is targeting.

However, there is disappointment that this roadmap has been restricted to corporation tax alone, and it is impossible to escape the tax rises in other areas and the impact these will have. Businesses, business owners and entrepreneurs will not thank the government for a predictable corporate tax regime, if they are struggling under a significant increase in other taxes and then also facing the prospect of increased inheritance taxes following the capping of Business Property Relief.