Business tax road map
Helen Miller
© Institute for Fiscal Studies
Corporation tax - BEPS actions
• Extend scope of hybrid mismatch rules
• Changes to withholding tax on royalties
• Implement new Patent Box approach
• Incorporate new Transfer Pricing Guidelines
• Country-by-country reporting
• Ongoing work on a multilateral instrument
• Restrict interest deductibility
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Corporation tax - restrict interest deductibility
• Anti-avoidance rule involves a trade-off between preventing
avoidance and distorting genuine activity
• From Apr 2017 limit interest deductions to 30% of EBITDA
(taxable earnings)
• Reduced effect of rule on:
– domestic UK groups (removed via group rule)
– public benefit infrastructure (exemption)
– firms with net interest below £2mn (de minimis threshold)
• More stringent rule than the current UK provision
– raise: £1.2bn 2018-19, £1bn 2019-20
– contrast with position in 2010 roadmap:
‘UK’s current interest rules, which do not significantly restrict relief for
interest, are considered by businesses as a competitive advantage’
© Institute for Fiscal Studies
Corporation tax - revenue shifts & rate cut
• Shift timing of payments to bring in £6bn in 2019-20
• Rate cut further to 17%; costs ~£2 billion
35%
30%
25%
20%
15%
Previous policy
2021
2020
2019
2018
2017
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
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2016
Budget 2016
10%
Corporation tax rates in G20
UK, 2020-21
UK, 2017–18
UK, 2015–16
Saudi Arabia
Russia
Turkey
EU
South Korea
Indonesia
China
Canada
Italy
South Africa
Mexico
Australia
Germany
Japan
India
Brazil
France
Argentina
US
0
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5
10
15
20
25
30
35
40
45
Corporation tax - restrict loss offsets
• Good tax system would give full loss offsets
– asymmetric treatment discourages risk taking
• From Apr 2017 losses can be offset against other income streams
or other companies within a group - a good move that adds
flexibility
• Also restrict carried forward loss offsets to 50% profits, if profits
above £5 million – not a good move
• Raises: £415m 2018-19, £295m 2019-20, largely just brings
revenue forward
• Further restrict banks’ pre-2015 losses
– raises: £465m 2018-19, £375m 2019-20, largely just brings revenue
forward
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North Sea oil & gas
• Petroleum revenue tax to 0%
– kept in place to allow decommissioning costs
• Supplementary charge from 20% to 10%
• Both backdated to 1 January 2016
– cost: ~£0.2bn a year from 2016 – 17
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© Institute for Fiscal Studies
2020-21
2018-19
2016-17
2014-15
2012-13
2010-11
2008-09
2006-07
2004-05
2002-03
0
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
1978-79
Oil and gas revenues, £billion
North Sea oil & gas revenues
14
12
10
8
6
4
2
Budget 2015 forecast
Budget 2016 forecast
-2
Business rates
• Tax on rental value of non-residential properties
• Policy change ‘to ensure ... system remains fit for purpose in the
twenty-first century’
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Business Rates
50%
45%
40%
35%
30%
25%
20%
15%
2015-16 system
10%
Planned 2016-17 system
5%
Budget 2016
0%
£0
£10,000
£20,000
£30,000 £40,000
Rateable value
£50,000
£60,000
£70,000
Business Rates
50%
45%
Threshold for higher rate increased
takes ~1/6 properties out of higher rate
40%
35%
30%
Cost: £1.4bn 2019-20
25%
20%
15%
2015-16 system
10%
Planned 2016-17 system
5%
Budget 2016
0%
£0
£10,000
£20,000
100% Small Business Rate Relief made
permanent, threshold increased
takes ~1/3 properties out of tax
£30,000
£40,000
£50,000
£60,000
£70,000
Business Rates
• Move indexation from RPI to CPI from Apr 2020
– not clear why index to inflation, but RPI discredited
– revenues will increase less quickly
• Consult on more frequent revaluations
• Business rates revenues retained by local authorities by 2020
– plan to compensate for Budget 2016 policy changes
– in future, policy change at central government will affect revenue
streams of local authorities
• Doesn’t deal with main concern: levied on value of business
property & therefore distort decisions
© Institute for Fiscal Studies
Stamp duty on non-residential property
£70,000
Also new 2% rate for leasehold rent transactions if NPV> £5m
£60,000
Overall: 90% of transactions pay the same or SDLT, 9% will
pay more
Tax payable
£50,000
Raise ~£0.5bn
£40,000
£30,000
£20,000
£10,000
Post Budget
Pre Budget
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£1,500,000
£1,350,000
£1,200,000
£900,000
£1,050,000
Sale price
£750,000
£600,000
£450,000
£300,000
£150,000
£0
£0
Summary
• For large business
– cut to rate
– BEPS actions, inc interest deductibility
• For ‘small’ business
– cut to rate
– Business rates, include SBRR for those occupying low rental value
property
• Business road map spans large number of areas but lacks vision
– continued move towards low rates plus anti-avoidance
– lots of small policies rather than discussion of design or ideas for
substantial improvements
© Institute for Fiscal Studies