“I want to be one of the most competitive countries in the world for investment,” Zahawi commented, arguing that corporation tax was the “one tax [investors] can compare globally.”
“I want to make sure we’re as competitive as we can be while maintaining fiscal discipline,” he added.
The new Chancellor also said his priority would be rebuilding and growing the UK economy as the country grapples with record-high inflation and the looming threat of recession. The UK is currently facing the worst cost-of-living crisis in decades.
Despite reshuffling his cabinet, Prime Minister Boris Johnson is still facing significant doubts over his future as the country’s leader.
This latest Number 10 scandal emerged as it was confirmed on Tuesday that the Prime Minister had been previously informed about an investigation into the inappropriate conduct of MP Chris Pincher, who he appointed as deputy chief whip.
[ymal]
EIP's James Seymour and Alex Gardiner share their insight on the updated scheme with Finance Monthly.
The UK Patent Box scheme is set to become an even more valuable tax benefit in the near future. With Chancellor Rishi Sunak’s announcement of higher corporate tax rates from 2023, larger and more profitable companies in the UK will be able to enjoy even greater savings on profits qualifying for Patent Box relief.
Currently, Patent Box allows UK companies to benefit from a reduced 10% corporate tax rate for income derived from qualifying intellectual property, rather than the standard 19%. However, with the corporate tax rate set to increase from 2023, companies with profits over a certain threshold will see even greater reductions in their tax rate using Patent Box, with some seeing up to a 15% drop in tax rates on qualifying profits.
Chancellor Rishi Sunak announced in the latest budget that from April 2023, the corporation tax will increase from the current 19% for businesses with over £50,000 in annual profit. For businesses over this threshold, a tapered rate will apply, such that the tax burden will increase in proportion with profit. Businesses with profits of £250,000 and above will be taxed at the full rate of 25%. Despite this, however, no announcement has been made of any increase in the reduced 10% tax rate enjoyed by Patent Box participants. As such, the UK Patent Box scheme will soon offer even more benefits to participants, with a larger drop in tax rate and corresponding larger savings.
The diagram below shows the potential savings available to Patent Box participants under the new corporate tax rates.
As can be seen from the chart, the savings for companies with profits under £50,000 will remain unchanged – they will be able to benefit from Patent Box to exactly the same extent as previously, lowering their tax rate on qualifying profits by 9%. Businesses over this threshold will benefit to a greater degree; as the tax rate increases in proportion to profit, the drop from corporate to Patent Box rate increases as well. Businesses paying the highest rate of corporate tax, 25% – i.e. those with profits over £250,000 – will be able to reduce their tax burden by 15% on qualifying profits.
To benefit from the Patent Box, a business must fulfil certain criteria relating to the development and use of their intellectual property. Patents are eligible if granted by the UK Intellectual Property Office (UKIPO), the European Patent Office (EPO), or patent offices in selected European countries.
The government has also issued further guidance on electing into Patent Box, including requirements and formalities.
With the announcement of the new corporate tax rates, Patent Box is set to play a much higher profile role for companies looking to reduce their overall tax burden.
The Biden Administration has proposed sweeping tax reforms to the OECD intended to limit multinational corporations’ ability to move profits overseas, in addition to a worldwide minimum corporate tax rate.
Plans leaked to the Financial Times showed that the administration is pushing for multinational corporations to be taxed not only on the basis of where they declare their profits, but where their customers are situated.
The administration’s proposals are designed to tackle the disproportionately low tax rates paid by international firms, including major US tech giants. Apple has become a prominent example, paying an effective tax rate of under 1% due to declaring its profits in Ireland.
Paul Monaghan, CEO of Fair Tax Mark, said that the proposed changes “would have a seismic impact on the likes of Amazon, Apple, Facebook and Google ... with billions of additional taxes paid in the US and across Europe.”
The move marks a significant shift away from past US policies, which proritised the tax sovereignty of nations.
In addition to this, the Biden administration is also backing the establishment of a global minimum corporate tax rate agreed upon between some of the world’s largest economies. The agreement is intended to stop countries from luring foreign businesses by offering tax discounts.
[ymal]
Corporation tax in the US currently stands at 21%, compared to 19% in the UK and 12.5% in Ireland. The Tax Foundation estimates the worldwide average for statutory corporate income tax at 23.85%, or 25.85% when weighed by GDP.
The US’s proposals to the OCD came after G20 finance ministers agreed on Wednesday to work towards an international consensus on tackling tax avoidance.
Tax hikes
Chancellor Rishi Sunak has unveiled a major tax hike in the 2021 budget – with corporation tax on company profits rising by 6% to 25% in 2023. Darren Upson, VP Small Business Europe at Soldo has commented: “While the Chancellor understandably needs to raise revenue to pay off the eye-watering amounts of cash borrowed throughout the course of the pandemic, we nonetheless worry about the timing of these tax hikes. In the context of Brexit, the government needs to ensure the UK remains an attractive destination for business. The last thing it ought to be doing is risking putting off investors and entrepreneurs with what may be perceived as a punitive tax regime. Another crucial concern is that these tax hikes may discourage SMBs from hiring. With unemployment creeping up, this move could ultimately prove to be counterproductive.”
Melissa Christopher, Executive Director at ZEDRA, argues the opposite:
”While the corporation tax rate increase is disappointing, it was inevitable that tax rises would happen and it primarily affects groups of companies that are profitable. The revised loss rules will help those companies who have struggled during the pandemic and will take a couple of years to recover.
“We rarely welcome tax increases, but tax certainty is helpful for international businesses as they plan their own budgets and revise business arrangements in the recovery period. The fact that the increase is not until 2023 will allow sensible business planning. No group should be making decisions on headline tax rates alone, and now is perhaps the best time to make reasoned and educated assessments of long-term expectations.
“International companies looking to expand to Europe will look at the UK as a successful economic location, with a motivated and educated workforce, and a stable business environment; the latter is particularly crucial in these turbulent times.
The extension of the furlough scheme
“The Chancellor’s decision to extend furlough [until September] will be hugely welcome for firms who’ve continued to struggle through this latest lockdown, but this solves just one part of a much bigger problem.
“Many workers being kept on the scheme will now be feeling huge financial and mental strain resulting from prolonged job insecurity and reduced pay, meaning businesses taking advantage of the extension need to have robust support in place for this section of their workforce. Even if you already have a benefits and wellbeing strategy in place, it’s well worth reassessing people’s current needs and priorities, as it’s more than likely you’ll find certain resources could be better utilised moving forward.
“The Prime Minister’s roadmap out of lockdown put the return of ‘normality’ firmly on the horizon, so when we eventually make it through the other side it will be just as important to have measures in place to support employees through the lasting effects of the pandemic. Workers have been incredibly loyal during a tough year, so these decisions should not be taken lightly.”
-Steve Bee, Director of WorkLife by OpenMoney
The extension to the stamp duty holiday and introduction of a government-backed 5% mortgage
“The Chancellor’s decision to extend the Stamp Duty Land Tax (SDLT) holiday and provide a Government-backed guarantee to mortgages with deposits of just 5% reflect the importance of maintaining optimism in the UK housing market. This level of support shows that the government continues to view the housing market as key to the UK economy at a time when the latest Nationwide House Price report confirmed that demand from buyers is being sustained.”
-Tom Brown, Managing Director of Real Estate at Ingenious
Help to Grow
“We applaud the government’s new £520m Help to Grow scheme, which aims to help small and medium-sized businesses boost their productivity. It’s particularly exciting to see the digital element of this, with the offer of technology advice and discounted software. This is exactly the kind of creative thinking required to get businesses back on their feet.
“It’s good to see the government offering guidance and channelling resources towards a specific and sensible direction, rather than simply throwing money at businesses and hoping for the best. It’s clear that digitisation and cloud-based operational models are the way of the future, and businesses that don’t embrace this are going to have a difficult time competing in the post-COVID era. Finance decision-makers, in particular, ought to use this ‘great pause’ to reassess their business and payments strategy, ensuring that these are fully optimised for life beyond the lockdown.”
-Darren Upson, VP Small Business Europe at Soldo
The £100m investment in the HMRC taskforce
“This is a positive announcement by the Chancellor and more than 1,000 new investigators may go some way to recouping the £billions which have been lost to fraud over the past 12 months of the coronavirus crisis.
“There’s no doubt that extra resources are much in need, particularly as the Chancellor has also announced a new Restart fund for businesses to replace the Bounce Back loans, which was wide open to fraud.
“But it’s also vital that a significant amount of that £100m investment goes into the systems used by HMRC to find those responsible for fraud. Without the use of the latest digital platforms to run ID checks and verify information on a global scale, these investigators will be in danger of just becoming busy fools.”
-John Dobson, CEO at AML specialists SmartSearch
The wider implications for the FinTech industry
“In the face of adversity, the UK FinTech industry has proven its resilience, attracting $4.6bn in VC investment last year despite the challenges and uncertainty caused by the pandemic. But safeguarding this growth and establishing the UK as a world leader in FinTech will require us to cultivate an attractive and prosperous environment for talent from all walks of life.
The Chancellor’s ‘fast-track’ FinTech visa is a welcome step in the right direction and there’s no doubt that the Kalifa Review signals a commitment to long-term investment. However, true innovation comes through diversity of thought and background, and as a migrant myself, the budget was missing this final piece: a reassurance to foreign talent that there is a home for them in the UK FinTech community.”
-Daumantas Dvilinskas, CEO and Co-Founder, TransferGo
Contactless payment limit
“The single contactless limit for credit and debit cards will rise to £100, and cumulative contactless payments up to £300 (before the need for consumers to input their chip and pin). This change may cause a divide among consumers, some may celebrate the change whereas others could now be concerned about over-spending or fraud. It is wise for customers to keep a close eye on where their money goes and be aware of when they will be required to use their pin. Peace of mind is a definite benefit when using a credit card for shopping, either in-store or online, as consumers are protected under Section 75 of the Consumer Credit Act for payments of £100 or more. If shoppers struggle to pay back their balance, they would be wise to hunt down a decent interest-free credit card for extra breathing space to tackle the debt.”
-Rachel Springall, Finance Expert at Moneyfacts.co.uk
What was missing?
“In a number of ways, the budget did not have the sharp teeth so many feared. There was no mention of a wealth tax, no wholesale reform to the inheritance tax regime, no sign of the increases in Capital Gains tax that were thought inevitable and an extension to the SDLT holiday. That is not to say that the door has now closed on these changes; in fact, we think it remains wide open and that the Chancellor will turn his attention to some of them in due course.
“It is also interesting to see the government’s forecast for inheritance tax receipts for the coming year has, for the first time, reached £6 billion. With this news and the OTS’ most recent report on the subject in hand, it remains an area we believe that is due for significant reform in the coming couple of years.”
- Tim Snaith, Partner at Winckworth Sherwood
Finance Monthly delves into the potential impact of an ‘Amazon tax’ and the alternative solutions that can help the struggling British bricks-and-mortar retailers.
With a series of high-profile collapses and CVAs, including the recent turbulences that House of Fraser is faced with, Britain has seen its fair share of high-street horror stories in 2018. Stores like Toys R Us UK, Maplin and Mothercare are all facing extinction, whilst online retailers such as Amazon are stronger than ever, cashing in $2.5bn per quarter and paying less and less corporation tax with Amazon’s UK tax bill falling about 40% in 2017, and it paying just £4.6 million ($5.6 million). In times like these, the UK retail industry has naturally called on the Government to review its outdated corporation tax system and take action to help the struggling high street. Chancellor Philip Hammond has in turn announced that he is considering a special retail tax on online business, dubbed the ‘Amazon tax’, in order to establish a “level-playing field” for online retailers and high-street shops. But is a new tax really the solution that will balance the market out? Will it be the solution that traditional trade needs?
Is Amazon’s Existence the Biggest Problem?
Consumer habits are changing rapidly with the continued growth of online shopping, but the truth is that the extraordinary success of web traders is only one of the aspects to consider when looking for the reasons behind the decline in traditional retail. And even though a hike in the tax that Amazon pays may seem like a necessary and logical step, it will be nothing more than a minor distraction from the bigger issue and something that will mainly benefit the Treasury.
It is worth noting that the UK store chains that have collapsed recently did so due to not having the right products at the right prices, not staying up-to-date with consumer trends, not targeting the right customers or not investing enough in their businesses. Surely, online-only merchants have transformed the trade landscape and the UK tax system needs to be adjusted in order to reflect the current retail dynamics – especially when Amazon’s tax bill for 2017 was only £4.6 million on £2 billion of sales. But is the fact that the web giant is paying such a low amount of tax the reason for the collapse of a number of bricks-and-mortar retailers? I think not.
Moreover, as Bloomberg points out, an internet shopping tax could end up backfiring and hurting the bricks-and-mortar retailers it is intended to help. According to the British Retail Consortium, in 2017, more than 17% of sales were made online. Over half of them were with businesses that also have shops. Thus, retailers such as Next Plc, which has both online and offline businesses, could face “a double tax whammy”.
The Real Problem
Driving restrictions around city centres, increased parking charges by local councils and state demands such as minimum wage legislation and Sunday trading laws have had a negative impact on bricks-and-mortar retail. Then there is the main challenge in the face of sky-high business rates which have been the bane of countless entrepreneurs trying to establish a high-street presence. In an article for The Telegraph, Ruth Davidson wrote that the UK retail sector, which makes up 5% of the country’s economy, is paying “25% of all business rates, over £7 billion per year”. One might argue that in order to help bricks-and-mortar retailers and keep British town centres bustling with thriving commerce, politicians could perhaps work towards reducing the financial burden they’re faced with, before punishing web giants for offering an easy and convenient way to shop in this digital era. In order to keep up with their online competitors, traditional stores need to focus on technology innovation and redesigning the experience that the modern-day customer expects. But most importantly, they need the budget to do so and a reduction in business rates for high-street stores could be one way to provide them with some extra cash to invest in technology.
Another thing to consider, as Andrea Felsted suggests, could be raising business rates for offices and warehouses and cutting them for shops. That would “address the disparity between shopfront-heavy retailers and online-only businesses, which rely on distribution centres to serve their customers”.
A potential Amazon tax for all web-only retailers will not help bricks-and-mortar retail to innovate. Surely, it will level the playing field, but apart from that, all we can expect will be a slowdown in online shopping without doing anything to solve the current problems that traditional traders are struggling with.
Despite some positive economic data in the run up to today’s Budget, the Chancellor has reinforced his steady approach while making some small but significant pro-business adjustments, according to accountancy firm, Menzies LLP.
Business rates
The Chancellor has announced a £600 a year cap on business rates for smaller retailers that stand to lose the small business rate relief. Local authorities are also being given a £300 million pot to support local business.
“The Chancellor has acknowledged that the business rate systems needs fundamental reform and has promised to address this in time. However, in the short term, this cap is not enough and will only deliver limited savings for SME businesses. This will disappoint those expecting big rates increases.”
Self-employment
In the interests of ‘fairness’, the Chancellor has opted to increase National Insurance Contribution rates payable by self-employed workers to 11% by April 2019.
“Care needs to be taken to ensure that self-employed workers aren’t unduly disadvantaged. For this reason, the consultation announced to take place this summer is welcome. In particular, employers will also need to be reassured that they will still have access to this valuable and flexible employment pool.”
Tax-free dividends
The Chancellor has announced plans for the tax-free dividends allowance to reduce from £5,000 to £2,000 in April 2018.
“Before 2016, basic rate tax payers paid no tax at all on dividend payments. Since then, a tax liability has been introduced in stages; first with an exemption on the first £5,000. Now this exemption has been reduced to £2,000, which suggests it could even be removed altogether in time.
“This is a stealth tax on basic rate tax payers. It will also hit employees of companies that encourage wider share ownership and make it harder for employers to create meaningful incentives.”
Brexit negotiations
The Chancellor stopped short of doing anything further on Corporation Tax, which is planned to decrease to 17% by 2020.
“Corporation tax was mentioned several times in the Chancellor’s Statement and this is probably because the government is considering using it as part of Brexit negotiations. Further measures to reduce the administrative burden of R&D tax relief could also be used in this way.”
Apprenticeships and technology training
The Chancellor is intending to go ahead with the introduction of the Apprenticeship Levy in April 2018 in its current form. He also announced the introduction of T-Levels; new, skills-focused qualifications to be attained through the further education system.
“The introduction of T-Levels is good news but it will be some time before any benefit is felt by employers. It means that 13,000 qualifications will be replaced by just 15 and this will certainly bring greater focus, which will help employers to understand and recognise these new qualifications.”
(Source: Menzies LLP)
