PwC: Pressures are building on corporation tax
We’ll send you a myFT Daily Digest email rounding up the latest HM Revenue & Customs news every morning.
Budget speeches, like classic recipes, are carefully put together from a range of ingredients.
The base of the Budget meal has to be the economy and it’s likely to form the main course just as it has done for the past few years. But whereas in recent years the dough has seemed a bit thinly spread, the extra seasoning added to the mix with the December Pre-Budget Report (PBR) has made it much more solid.
Economic growth slowed from 3.2% in 2004 to an estimated 1.8% in 2005, although this was still higher than an estimated 1.4% in Euroland. The PricewaterhouseCoopers main scenario is a modest recovery in UK economic growth:
• 2.25% in 2006 (the Treasury says 2% - 2.5%).
• 2.75% in 2007 (the Treasury says 2.75% - 3.25%).
The PBR introduced net tax increases of around £2.5 billion, mostly through higher taxes on North Sea oil companies. Public spending growth is set to slow progressively from now on to around 1.85% annual real growth, indicating borrowing of around £37 billion (3% of GDP) this year. There seems no particular need to raise taxes in the Budget.
If taxes aren’t going to rise overall, that doesn’t mean there will be no action on the tax front.
Pressures are building on corporation tax – whilst revenues are rising at present, it is questionable whether this is sustainable in the longer term. Increasingly, the UK’s tax system is looking less competitive for businesses than it once was, though our social security rates taste better than French and other equivalents.
The UK takes a relatively high proportion of its taxes in corporation tax – is it time to commission a long hard look at where the tax is going? However, the chances are that we will have to wait with action limited to tasters such as:
• Some much needed moves on bringing aspects of the tax system into line with EU rules in the wake of European Court of Justice decisions.
• The long-awaited abolition of the outdated schedular system – though has HM Revenue & Customs (HMRC) lost its appetite for such reforms?
• Possible tweaks to the profits limits for the 19% small companies rate.
• Some gestures to smaller business with higher capital allowances.
• All topped off with the inevitable anti-avoidance measures, no doubt partly informed by the successful Tax Avoidance Disclosure (TAD) regime.
We have some pointers with recent consultations, so that should mean we see the final rules on Real Estate Investment Trusts (REITs) and extensions to the Research & Development (R&D) regime folded in. And perhaps some announcements on HMRC’s powers where there is a major ongoing review – hopefully this will be a balanced blend.
Some flavouring to the mix with tax credits, fiscal drag on income tax rate bands and the possibility of special council tax help for pensioners could complete the pie which will no doubt simmer for around 60 minutes.
Get alerts on HM Revenue & Customs when a new story is published