In the third of our thought leadership pieces ahead of the Budget on 29 October 2018, we take a look at what the Chancellor could do for the large business sector.

We sat down with Bishop Fleming Partner Chris Walklett to get his thoughts on the forthcoming Budget.

Chris specialises in Business & International Tax, and Business Valuations, and is one of Bishop Fleming’s Brexit Advice team.

Q1 – Are there any key measures you would wish to hear announced in the Budget to help large companies? 

The rate of corporation tax is planned to drop to 17% from 1 April 2020, but there has been speculation that the Chancellor may choose to leave the rate at its current 19% instead. I am concerned that the Chancellor lacks the commitment to follow through with reducing the rate.

I would also like to see a  commitment to keeping the annual investment allowance for capital allowances.

Q2 – R&D tax relief claims continue to grow. What more can the Chancellor do to encourage companies to claim?

Awareness of the R&D regime is quite broad now, but there remains an issue with the range of professional advice available, from the ethical through to the less ethical.

The government needs to ensure that R&D claims are of a high quality. HMRC is far less likely to challenge a claim where it recognises the advisors as trusted to have properly assessed and presented the claim.

What would be good is to see the government showing an intention to retain the regime post Brexit. If the EU’s state aid rules are removed, the Treasury could even consider improving the regime.

Q3 – Would you like to see reforms made to the patent box regime, and if so what should these be? 

Pressure from the EU and the OECD led to the rules being tightened, and they are now at odds to the typical manner in which intellectual property (IP) is owned and managed.  A simpler regime that assesses groups as one entity, enabling greater access to the 10% rate, is what is needed.

Q4 – As part of a Brexit deal with the EU, the UK may have to temporarily sign up to the EU’s state aid rules, which would affect reliefs such as R&D, Patent Box, EIS etc. Once free of such rules, how could these reliefs be reformed/enhanced? 

There are a number of ways in which the reliefs could be enhanced, including:

  • Enable companies to claim grants and R&D tax credits under the SME regime.
  • Increase the heads of expenditure that qualify for R&D.
  • Patent Box – simplify the rules so groups can manage IP commercially and legally without compromising the claim.
  • EIS – a focus on innovation is sensible, but relax the rules on investment time limits etc.

Q5 – Brexit is the biggest challenge facing many large companies, particularly when it comes to exports and imports and maintaining supply chains. Apart from a negotiated trade deal between the UK and EU, what Budget measures could help to ensure international trade benefits from Brexit?

The UK is the most competitive tax jurisdiction in the G20, with initiatives such as R&D, EIS, EMI making us an attractive country to do business.  These instruments should represent pull factors post Brexit – and the chancellor should commit to them in the Budget.

Q6 – The Chancellor is under pressure to reduce the adverse impact of business rates. What could he do to reform this tax, if anything? 

There needs to be reform, and online retailers should be taxed in a way that makes it more of a level playing field.

Q7 – Post Brexit there will be restrictions on the freedom of movement of EU workers coming to the UK. What can the Chancellor do to reduce the inevitable skills gap that businesses will experience as a result of these restrictions? 

Technology is increasingly being used to replace workers, notably in agriculture.  Supporting innovation through tax reliefs, and grant funding can only help this.

Q8 – Would you reform the Apprenticeship Levy? If so, what would you like to see done? 

The levy is effectively a tax on all qualifying companies, addressing the fact that some companies do not invest in their staff/apprenticeships.  Why place a burden on all businesses? Instead let the law of natural selection take over: those companies that look after their staff, and invest in apprenticeships will thrive, whereas those that don’t will struggle.  Scrap the levy.

Q9 – Should the Chancellor do more to invest in UK infrastructure to help large businesses, such as better broadband and roads?

This is already happening via the Local Enterprise Partnerships (LEPs).  In addition to infrastructure, LEPs are providing capital funding to companies via grants.  What we need more of is revenue grant funding.

Q10 – Since April 2017 the IR35 legislation has forced public sector organisations that use contractors to establish if those workers are employees or self-employed. There is speculation that this will be rolled out into the private sector either in 2019 or 2020. How would this impact on the large business sector? 

These arrangements are often abusive and it is right that rules are tightened here.  This will increase the burden on businesses, and may result in some suppliers refusing to work for companies, where they are going to be treated as employees.

Watch out for the Budget on 29 October!

Bishop Fleming will be covering the Budget on the day and will follow up announcements about the large business sector with Chris afterwards to see how well he thinks the Chancellor has done.

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