Confusion over tax regime is damaging UK

ON Monday, the prime minister released a draft Tax Framework for Business at a global trade conference, apparently aimed at reassuring multinationals, worried about the UK’s tax policy. The problem with this framework is that it offers no guidance at all on the direction of travel. Rather, its statements are a mixture of vague aspirations and the completely obvious.

It kicks off with the oft-repeated mantra: “The government is committed to maintaining the UK’s competitiveness and will ensure that the UK remains an attractive location in which and from which to do business.” Try putting that in the negative – “the government is committed to making the UK less competitive” – to see how empty it is as a policy intention. The remaining principles offer similar thoughts – and then the document qualifies everything by concluding that “the relative weighting of these principles will vary depending upon the circumstances, and as a result the government will need to make trade-offs between these principles.”

What would surely help debates about taxation would be some thoughts from the Treasury on the areas of tax policy it intended considering over, say, the next five years. For example, does the Treasury think that the approximate allocation of tax between business and individuals is roughly right – so that cuts in one business tax need to be funded from tax rises on other business activities? Does the government wish to cut rates, at the expense of broadening the base? Alternatively, does it expect a medium-term reduction in corporate tax, to enhance business competitiveness? That policy would move more taxation onto individuals so as to balance the books.

One area that would have benefited from a clearer statement of policy is compliance. Companies were taken by surprise last year by the move to electronic filing and iXBRL. A clearer policy statement that the Treasury intended cutting HMRC’s costs by making companies file electronically could have helped.

The same point applies to the PAYE system – it’s inevitable that HMRC will make companies put benefits through the payroll at some stage, simply to do away with the immensely time-consuming and costly process of tax codes. However, there isn’t a public statement of intent.

Other major areas worthy of study are the boundaries between the different tax and national insurance implications of self-employment, and the provision of services via companies and employment on fixed-term contracts. This area affects several million people and is sometimes seen as an area full of tax avoidance.

The boundaries between capital gains and income – and the approach towards rates – could also be a policy area. Does the government see capital gains as inherently different from income, with a sustainable 18 per cent rate – or would it prefer the Lib Dem policy of treating them in the same way?

Directions of travel would help business appreciate better the UK as an investment location.
Bill Dodwell is head of the tax policy group at Deloitte