Wednesday 11 March 2020 10:59 amEY Talk

Businesses urge Chancellor to introduce tax incentives to address trade challenges in a post-Brexit world

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Ahead of the Budget, the views of over 500 finance professionals from across the UK were canvassed to find out what policy initiatives the Chancellor should announce to provide an economic boost to a post-Brexit Britain, and to understand the biggest threats to the country’s tax competitiveness.

The survey, conducted by EY, reveals that one-third of businesses surveyed put  tax incentives top on their list of items to be included in the Chancellor’s red book on Wednesday.

Chris Sanger, EY’s head of tax policy, commented:

“The survey reveals a clear call for tax incentives to help boost businesses faced with leaving the EU and are now faced with the economic challenges presented by the spread of the Coronavirus. However, these incentives need to be carefully thought through and designed to address the needs of business. They be should be focused on helping those facing the trade challenges that will inevitably arise as businesses adjust to a post-EU world.”

Nearly half of those polled (44%) believe that the biggest issue for UK tax competitiveness and investment is the impact Brexit will have on trade, with one in six citing the tax costs arising from Britain leaving the EU – for example the withholding tax and the price of divergence from EU rules.

Sanger continues:

“Beyond trade, the Government should act to address the tax inefficiencies as the UK loses the benefit of the rules negotiated by the EU, for example to reduce withholding taxes. In some cases, this may not be by means of incentives, but instead provide a clear work programme for the Treasury as it seeks to replicate the reliefs that businesses have long since grown used to.”

Homegrown issues remain important for business

Beyond Brexit challenges, the survey reveals home grown issues remain prevalent.

The ongoing complexity of the tax system remains a core concern with one in five respondents saying that red tape and regulation continues to hinder businesses based in the UK, but also makes those overseas investors, who are considering setting up a business on these shores, think twice before they do.

Read more: Brexit and international trade policy leader joins EY’s trade team

Complexity, however, is less of a concern for senior management, with only one in ten of those respondents from the boardroom citing this as a challenge. The boardroom, confident in their tax department’s ability to cope, appears far more concerned about regulation and employment costs.

“While a call for reduced red tape and regulation is a message UK business has issued time and time again, it is brought into sharper focus against a backdrop of leaving the EU as corporates look to bolster their competitive advantage in post Brexit world. This will necessarily change the environment in which business is operating and the opportunity could be seized to simplify the tax system. 

Read more: Downing Street to publish draft FTA before second round of trade talks

“This could free up time and resources for UK corporates to focus more on building and developing their own businesses, rather than spending time navigating overly complex rules and regulations. Businesses should be given the help they need to become as competitive as possible, as they face new challenges operating outside of the EU.”

Beyond complexity, concerns on business rates remain prevalent amongst all those in sectors subject to the tax. The repeated raising of concerns, year after year, indicates that the changes to date have done little to tackle the impact that this tax is having on larger businesses.

Policies to enhance not erode enterprise

In addition, policy changes that weaken enterprise are warned against, such the possible abolition of Entrepreneur’s Relief.  Similarly, concern was expressed regarding Digital Services Tax, with one in seven tax respondents seeing the decision to defer implementation as critical.

Read more: UK must ‘think about trade-offs’ in post-Brexit trade talks, says Commission boss

Sanger adds: “The Chancellor has a balancing act to negotiate on Wednesday. On the one hand he must try and introduce, or at the very least consult on, tax policy for the long-term prosperity of the UK and its economy in light of the trading challenges brought about by the UK leaving the EU at the end of this year.

“On the other, he has to deal with the shorter-term economic impact of Covid-19. This may prompt the Chancellor into more of a short-term give-away mood, or potentially ensuring that he has the power to make changes rapidly in the future.  Other countries have introduced fiscal stimulus packages, and the Chancellor may well wish to prepare for such an eventuality.”

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