UK Chancellor Rachel Reeves’ upcoming Budget should aim to boost investment through super deductions and to avoid an ‘exit tax’, tax experts tell ITR.
The Budget, which will be unveiled on October 30, is keenly anticipated as it represents the Labour Party’s first since coming to power earlier this year.
Reeves’ party, led by Prime Minister Keir Starmer, secured a substantial majority of more than 410 seats in the House of Commons in a general election in July.
Reeves has previously ruled out rises in corporation tax (CT), VAT, income tax and national insurance contributions (NIC), saying the government would cap CT at the current rate of 25%.
She has also indicated that no further tax rises are planned beyond those already set out at the annual Labour Party conference last year.
“As Labour has previously ruled out raising NIC, income tax and VAT, an obvious option for raising revenue is to amend the capital gains tax or inheritance tax regimes,” says Christy Wilson, tax associate at Katten Muchin Rosenman in London.
What advisers want
Dean Needham, a UK-based senior manager for capital allowances tax analysis at tax services and software provide Ryan, is calling on Reeves to boost business investment through super deductions.
“With the repeal of super deductions for capital allowances in 2023, replaced by full expensing, the government should consider reintroducing an enhanced 30% tax relief on top of the investment value.
“This measure would encourage businesses to invest again, but it must be introduced for a more extended period this time,” he tells ITR.
Meanwhile, London-based Norton Rose Fulbright global head of tax Dominic Stuttaford and partner Matthew Hodkin tell ITR that the government must delicately balance targets with ensuring that the UK stays competitive in how it taxes both a range of individuals and specific sectors.
“This includes non-UK domiciled individuals, business owners, private equity, banks and the energy sector,” they tell ITR.
After Reeves last month vowed to cap the country’s CT at 25%, ITR reported that UK tax advisers had branded it “a smart move” and “an easy give”.
London-based corporate tax partner at MHA Chris Danes believes the cap, on its face, provides some level of certainty and stability for business.
However, he also tells ITR that it doesn’t send a strong message to the outside world that the UK is an attractive place to invest.
“We believe moving the UK CT rate closer to the OECD’s global minimum tax rate of 15% and following the very successful example of our nearest neighbour, Ireland, would make a far bigger positive financial impact and could lead to a significant overall increase in the tax take – perhaps as much as £20 billion based on our research.
“And this would be in addition to all the ancillary benefits a revitalised UK economy could bring,” he tells ITR.
Beyond CT
Danes is also looking for greater details on the additional funding for the 5,000 extra tax officers Reeves has pledged to help close the UK’s tax gap.
“We hope this is a comprehensive long-term plan to support business, with the R&D regime challenges regarding untrained staff leading enquiries not being repeated.
“Businesses following the rules and HMRC guidance deserve support and certainty rather than a significant additional compliance burden,” he says.
Reeves has also reportedly been urged to use her October Budget to introduce CGT exit charges on people who leave the UK, though some experts oppose the idea.
“That would likely be a material backward step for encouraging high-quality human capital to come to the UK, invest and grow businesses – something the Labour Party claim they want to encourage as a central plank of improving public services,” says James Anderson, head of Skadden’s European tax practice based in London.
Whether Reeves heeds this and other advice remains to be seen. What seems more certain, however, is that businesses should brace for changes beyond the CT rate.
