Businesses are looking for stability and certainty from the Budget, rather than sweeping reform, according to business advisory firm KPMG.
KPMG’s Head of International Tax and Tax Policy Melissa Geiger argues that the Chancellor’s expected focus on delivering key election promises and deferring major announcements to later in the year will offer some much-anticipated, albeit brief, stability to the UK tax code.
Melissa Geiger, head of international tax and tax policy at KPMG in the UK, said: “Chatter before Budgets is typically awash with speculation over what businesses might want served up from the Chancellor. But, after such a long period of disruption and uncertainty, a Budget of simple fare would be most heartily welcomed by businesses and possibly most taxpayers too.
“A simple Budget doesn’t have to be without flavour. Business leaders will want further clarity on policies that are already on the agenda, including plans to reform Business Rates, the introduction of the Digital Services Tax and adjusting the National Insurance threshold.
“They will also keep a close eye on the direction that any reviews take on pensions tax relief and inheritance tax after repeated calls to overhaul complicated structures. Businesses will also look for any insight into the Treasury’s longer-term plans to make sure that employment taxes reflect modern ways of working and the general tax system is geared towards supporting environmental objectives.
“If the Chancellor is tempted to make any significant reform, many will want to be engaged and see early and comprehensive consultation with stakeholders. Otherwise, he risks upsetting an expectant clientele before all three fiscal statements are served this year.”
Budget flavour – businesses could see further clarity and reviews on some key policy areas:
- Inheritance tax (IHT) review: Calls to simplify IHT and an All-Party Parliamentary Group paper recommending reforms are likely to be heard. KPMG notes that stakeholders will hope for a thorough consultation process first before any sweeping reforms are brought in.
- Digital Services Tax (DST): DST remains firmly on the Government’s agenda and is still due to come into force in April 2020. However, with growing pressure from the US to halt or reverse unilateral tax efforts on the digital sector, some elements of the policy may be tweaked.
- Pensions Tax Relief: Pensions tax relief costs the Government a significant amount of tax. In 2017/18 it cost £37.2bn. KPMG’s Melissa Geiger believes the focus of any review will likely turn to the structure of the relief as the current system is complicated and needs simplifying so that everybody can understand it.
- Environmental taxes: It’s expected that tax rates for businesses will be, in time, linked in some way to environmentally and socially responsible behaviour. Melissa Geiger says that the Government could see green changes to the tax code as an opportunity to demonstrate that it is in step with younger voters. However, policy in this area runs the risk of being fiendishly complicated to implement.
- Business rates and corporation tax: Businesses have been relatively relaxed about the Government’s decision not to reduce Corporation Tax to 17%. Instead, KPMG expects the Chancellor to respond to business calls for simplicity, rather than cuts to an already competitive headline rate. Meanwhile, estate-focused businesses, such as retail, as well as small businesses, which stand to benefit most from any changes to Business Rates will anticipate further detail on the impending review.
Budget staples – expected policy changes:
- Entrepreneurs’ Relief: KPMG expects Entrepreneurs’ Relief to be cut, rather than abolished, and the incentive it provides to shift towards encouraging small start-ups and away from situations where there is limited or no entrepreneurial activity.
- Employment taxes: Promises to increase the National Insurance threshold and freeze Income Tax are also expected to be fulfilled. However, fundamental concerns regarding whether the taxation of labour adequately reflects modern ways of working could also frame the Chancellor’s longer-term plans for employment taxes.
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About KPMG in the UK
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 17,600 partners and staff. The UK firm recorded a revenue of £2.40 billion in the year ended 30 September 2019. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 147 countries and territories and has more than 219,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.