Ahead of the chancellor’s autumn Budget announcement on November 11, and in the wake of the release of the ‘Paradise Papers’, Grant Thornton suggests a fundamental review of the more than 1,100 current tax reliefs could have a net positive impact on the public purse and economic growth.
Rebuilding the tax regime to ensure it is 'fit for purpose' in a post-Brexit world would also foster a better understanding of how tax works and make it harder for those who wish to abuse the tax regime to do so.
The plethora of UK tax reliefs enacted for individuals and businesses are estimated to cost just over £400 billion each year. Analysis suggests that simplifying the system by removing many of these reliefs would offer both clarity and efficiency for taxpayers, and enable the Treasury to focus its resources in ensuring a more streamlined and effective revenue collection process is in place and direct spending on reliefs towards proven market failures.
Trudi Amy, director of tax at Grant Thornton LLP Southampton, said: “Tax reliefs are designed to help maintain the competitiveness of the UK tax system and as a mechanism for governments to redistribute wealth and influence good, long-term, behaviours. They play a significant role in defining the scope of tax and determining where the burden of tax falls. In principal, they should be of great benefit but as with the rest of the UK tax system, they are shrouded in complexity leaving them open to abuse or closed off to those that are eligible.
“In 2011, the Office of Tax Simplification (OTS) reviewed the number of reliefs in the UK, which at that time totalled 1,024. Following a recommendation that 47 reliefs (of 155 reviewed) were removed, the number of reliefs in fact rose to 1,128 by 2014 (per NAO). These reliefs totalled a forecasted cost (at March 2017) of £407b without any reliable estimates of the behavioural impact of them. This begs the question as to whether they are in fact beneficial to the UK at all.
“For tax reliefs to be used efficiently and for their intended purpose, the government needs to clearly outline its plans for the UK economy, the behaviours it wants to encourage and the sectors that it wants to grow and then create the reliefs that will support this. This work needs to be closely aligned to the detail of the government’s Industrial Strategy. This is more important than ever as we move closer to exiting the European Union and to ensuring we have the reliefs in place that support a flourishing post-Brexit economy. Tax reliefs can be relevant – for example, if we want to develop a stronger export culture then the government should introduce tax credits that support businesses in researching and entering new markets, whilst eliminating aspects of tax code which often inhibit growth through their complexities.”
“In addition, this would act as a wake-up call for some businesses to accept that wider tax stakeholders – society at large – now expects corporates to do the right things on tax, irrespective of what convoluted laws might allow them to do.
“Finally, whatever the tax regime looks like, it is clear that even a basic understanding of how tax works, its role in society and the impact it has on individuals and companies, is essential. Grant Thornton asks that mandatory basic tax education is provided to all pupils at Key Stage 2 so as to provide a foundation of tax and its purpose for future generations.”
Grant Thornton’s Budget 2017 recommendations, focused on areas of Trust, Growth and Place
Trust: unleashing purpose in business and financial markets
A tax regime fit for purpose, fit for a post-Brexit Britain, is essential. Our UK regime is overly complex and provides scope for abuse by some; wilful misinterpretation by others.
In addition to a fundamental review of existing tax reliefs, Grant Thornton believes the forthcoming Budget should build on the government’s mission-led Business Review last year, setting an ambition for 'profits with purpose' to become the new normal. To support this the firm recommends Budget:
Growth: putting collaboration at the heart of the UK’s industrial strategy
The review of current tax reliefs, representing £400b of revenues foregone, could enable more focused support to those businesses and individuals so as to boost growth now, as well as provide for the future needs of our society.
In addition, the government’s industrial strategy should incentivise collaboration to boost exports and skills. We recommend Budget 2017 should:
Place: equipping towns, cities and rural areas to create vibrant local economies
Government should continue to devolve powers from Brussels and Westminster to local areas, in ways that encourage innovation, collaboration and trust. Demographic change and budget pressures mean that local innovation in delivery models for public services is vital to maintain sustainable services in the future. We recommend that Budget 2017 should:
Amy concluded: “We ask that the government is brave in its approach and strip our tax system back to one that supports the UK economy. They must clearly define and shape a tax system that is fit for purpose now and in a post-Brexit future. Only then will tax reliefs perform their intended function.”
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