Rt Hon Philip Hammond MP, photo courtesy of Chatham House
Tax specialist at business and finance adviser Grant Thornton UK LLP in Leicester, Mark Pashley, is urging Chancellor Philip Hammond to review the UK's tax regime ahead of the Budget next week (22 November 2017), if it is to be fit for purpose post Brexit.
Grant Thornton is suggesting that a fundamental review of the more than 1,100 current tax reliefs by the Chancellor could have a net positive impact on the public purse and economic growth, and that rebuilding the tax regime ready for 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 £400bn each year,” says Mark Pashley, Tax Director and a member of the senior leadership team at Grant Thornton’s East Midlands office.
“Analysis suggests that simplifying the system by removing many of these reliefs would offer 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.
“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 principle, 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.
"For tax reliefs to be used efficiently, Government needs to clearly outline its plans for the UK economy, the behaviours it wants to encourage, and the sectors it wants to grow - and then create reliefs to support this."
Tax Specialist Mark Pashley
The firm believes this is more important than ever before: “As we move closer to exiting the European Union, the Government must ensure we have the reliefs in place that support a flourishing post-Brexit economy,” says Mark. “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.
“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.”
Grant Thornton’s Budget 2017 key recommendations, focused on the areas of Trust, Growth and Place:
Trust – unleashing purpose in business and financial markets by creating a tax regime that is fit for purpose;
Growth – putting collaboration at the heart of the UK’s industrial strategy by reviewing the poorly targeted and overly complicated current system of tax reliefs; and
Place – equipping towns, cities and communities to create vibrant economies that encourage innovation.
“We ask the Government to be brave in its approach and strip our tax system back to one that supports the UK economy,” adds Mark. “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.”