There are a number of areas where the government has already been consulting which makes announcements in these areas more likely.
R&D merged scheme
The government released draft legislation for consultation in July merging the two R&D schemes currently available in the UK. The merged scheme will resemble the existing RDEC with the credit being an above the line item. The reforms reward the company funding the R&D rather than the company undertaking the activity, although it is still unclear whether companies can claim for subcontracted work by an overseas company. The SME scheme will be preserved for high intensity, loss-making R&D businesses with a payable credit for surrendered losses providing a net benefit of 27%.
If the proposals do go ahead, then we would expect similar rules to the Irish R&D regime to deal with subcontracted R&D to allow businesses to specify contractually who can make the claim.
Prediction: Expect the R&D reform to be paused in the short term to allow further work on how subcontracted R&D could operate under a merged scheme.
OECD Base Erosion and Profit Shifting (BEPS)
We can also expect an update on the UK’s implementation of reforms to the international tax framework through the OECD’s BEPS project. The UK is committed to the OECD’s two pillar solution. The UK has already enacted legislation to implement the global minimum tax of 15% (Pillar two). September saw the most recent amendments published in relation to the UK’s proposed adoption of the Under Taxed Payments (UTPR) Rule (the backstop rule for undertaxed profit), as well as other changes to keep the UK legislation consistent with the evolving OECD rules. We may see further amendments to reflect more recent developments in the Administrative Guidance released by the Inclusive Framework of the OECD as well as obtaining clarity on when the UTPR legislation will be enacted in the UK.
International work also continues on Pillar one, which applies to only the largest multinationals and will reallocate certain amounts of taxable profit to market jurisdictions. The OECD released a significant number of documents in relation to pillar one in October, in particular the text of a new multilateral convention (MLC) to implement Amount A. Whether Pillar one gets across the line globally is still up for debate and depends on its acceptance by a critical mass of jurisdictions – and in particular whether the US adopts it - so any statements on the UK’s position will be received with interest.
Prediction: Expect an update on BEPS 2.0 regarding timing of the adoption of the UK legislation for the Under Taxed Payments Rule and potentially minor amendments to align the UK’s global minimum tax legislation with the latest OECD developments.
Back to work initiatives
In the Spring there were several announcements to encourage people back to work. Pension savings limits were eased and there was a big expansion of free childcare.
More recently the focus has been on the amount of people off work long-term sick, particularly since Covid. The government has been consulting on providing a form of ‘super-deduction’ for firms that provide certain types of healthcare, in particular regular health screenings and medical check-ups.
We think it likely that the government will take this forward, but it will be interesting to see if they extend relief to the benefit-in-kind charge that is imposed on employees where their employer provides healthcare.
Prediction: A super deduction for employers who provide certain healthcare and relief from any associated benefit-in-kind charge will be announced.
Lord Harrington review
In March 2023 Lord Harrington was asked to undertake a review of how the UK can better attract foreign direct investment into key growth sectors. The findings were due in September and businesses will be keen to see how the government is going to respond.
Business tax changes take longer to bed in because taxpayers have to plan how to take advantage of what is being offered. Time is running out for the government to take action, especially if the intention is to start showing a harvest before the election.
Prediction: Expect an update on Lord Harrington’s findings around the time of the Autumn Statement. Expect it to be long on ambition but short on detail.
Net Zero
Both the U and the EU have made significant announcements around incentivising green technology. The US introduced the Inflation Reduction Act which offered generous tax credits for green technology, alongside a degree of protectionism in terms of certain provisions only supporting domestic supply chains. The EU have also announced a New Green Deal which effectively allows some deviation from State Aid rules to encourage green initiatives to stay within the union.
The UK has yet to show its hand in terms of a response to either of these initiatives. The Chancellor has promised this for the Autumn Statement although he has previously said that the UK will not follow the ‘subsidy bowl’ approach of the US.
Prediction: Expect an announcement on the UK’s response to US and EU initiatives to attract green investment but don’t expect big giveaways. It may be wrapped up with Lord Harrington’s report. Again, the ambition may be there, but the measures announced may fail to inspire.