Budget: Where is UK corporation tax headed?

Predictability, stability and certainty: these are the things which the Government’s newly published Corporate Tax Roadmap highlights as taxpayers’ priorities. Many businesses would warmly agree, but does the Roadmap deliver?

Inevitably, there is one fairly major upfront caveat: this is a Corporate Tax Roadmap (like that published in 2010 by the then newly formed coalition Government in the wake of the financial crisis) and not a Business Tax Roadmap (like that published in 2016). The recent Autumn Budget starkly illustrates the difference, with the Government being clear in its view that significant changes to the broader business tax environment – notably to employment taxes and business rates – were unavoidable, whilst making relatively few pure corporate tax announcements. In this broader context, the Roadmap seeks to provide a measure of reassurance to businesses which might be feeling unsettled by those wider changes, but one which is inevitably qualified by its limited scope.

In part this reassurance is achieved with a repeated emphasis on an absence of change. The list of areas to be left untouched includes the corporate tax rates, key features of the capital allowances, intangible assets, patent box, loss and interest deductibility regimes, the generosity of the R&D reliefs, expenditure credits for visual effects and video games, and the key structural features (including the substantial shareholdings exemption and the dividend exemption) of the UK’s increasingly territorial tax regime.

There can be real value to that. For example, and by contrast, the Roadmap indicates that the additional taxes imposed on the banking sector will be kept ‘under review’ to ensure a balance between growth and sound fiscal policy. This is a carefully worded message that neatly tests the innate optimism or pessimism of its recipient.

Unsurprisingly, given the economic constraints faced by the Government, a similar caution permeates most suggestions of possible areas for change. For example, the Roadmap mentions the scope to simplify the capital allowances regime, rationalise the UK’s rules for taxing cross-border activities, and modernise the administration of corporation tax – all potentially welcome developments – but as yet is not making any specific proposals or giving a clear timetable for progress.

Aside from making a virtue of stability in the rules, for a Government with little room to manoeuvre in terms of the substantive tax liabilities faced by business, the easiest ask from business to satisfy is the long-standing one for increased certainty in how those rules apply. There are welcome signs in the Roadmap that the Government is heeding this call, with promises of new and improved guidance on R&D and Pillar Two, an advance clearance regime for R&D, and the development of a new process to give investors in major projects increased advance certainty.

The scope of this last proposal, and how it will compare to the existing non-statutory business clearance regime, has not yet been spelled out and greater clarity should be provided by a consultation planned for spring 2025. With the regular complaint of the difficulties faced by businesses genuinely seeking to be compliant in an increasingly complex tax environment, there is real scope for meaningful change here and hence much interest in the enthusiasm with which that consultation embraces the challenge.

If simplification and certainty are the carrots to tempt a traveler down the path set out by the Roadmap, the stick comes in the form of an increased compliance focus – for example, in the revival of proposals to require businesses within the scope of transfer pricing to routinely report cross-border connected party transactions.

In a difficult economic climate, the Roadmap goes out of its way to set a reassuring tone and hints at some real improvements in the taxpayer experience if its path is followed, but acknowledges that the journey asks as well as offers.

For further information please contact:

• Paul Freeman
• Sharon Baynham