Autumn Statement: ACCA calls for five major tax reforms amid Brexit uncertainty

ACCA (Association of Chartered Certified Accountants)

Ahead of the Chancellor’s first Autumn Statement since the UK’s vote to leave the European Union, ACCA (the Association of Certified Chartered Accountants) has urged significant action on tax to benefit small business, property owners and government as they grapple with Brexit uncertainty.

With the economy facing stress with regard to Sterling’s dramatic fall in value, political uncertainty over the future of free movement and pessimistic growth forecasts, ACCA believes that decisive reform to taxation can deliver instant benefits to those hardest hit.

Chas Roy-Chowdhury, head of taxation at ACCA is calling for five major steps:

In light of post-Brexit uncertainties, defer tax changes and maximise on opportunities to further tailor MTD for VAT

The new Making Tax Digital (MTD) reforms for SMES should be deferred to relieve additional burdens on business while the economy fluctuates, and allow extra time to ensure that MTD for VAT can, if appropriate, be tailored to UK principles, rather than the common EU regime:

‘Small businesses, professional advisers and software houses alike have expressed real concerns about their and HMRC’s readiness for MTD. A trial period of, for example, 21 months, for self-assessment taxes would allow time for HMRC and taxpayers alike to identify and iron out any changes in the system before imposing it wholesale on the UK economy.

‘The post-Brexit environment has also led to a number of technical concerns: for example, the repeal of European Communities Act (ECA)1972 would directly affect the operation of VAT. Even if the short term effects can be minimised by simply incorporating existing legislation into the UK statute book, the question of how any disputes are resolved will still be live; the UK won’t be able to rely upon future European judgments, and the status of existing ones would need to be clarified.

‘There are a number of areas where the current HMRC interpretation has diverged from the European courts, and local financial professionals would need specific guidance on them.

‘On a positive note, Brexit genuinely offers the UK tax authority the opportunity to develop a properly integrated consumption tax into the suite of taxes reported by businesses in the UK. Thresholds and limits could be revised to common levels, reporting periods aligned, reporting requirements consolidated into a coherent framework of consistent formats and attributes.

‘However, if MTD for VAT is forced through while the UK is still subject to the common EU regime then it will have to be designed to operate on the European principles which are incompatible with MTD interim reporting aspirations, and once implemented there is unlikely to be any appetite from either business or software developers to fundamentally revise the whole basis of reporting; we will be stuck with an evolution of return based VAT, rather than a properly aligned consumption tax that can operate as part of a coherent whole.’

VAT registration threshold should be increased to £100,000 for SMEs

Increasing the VAT registration threshold would slash red-tape for SMEs whilst meeting the Treasury’s own proposals on Anti-Money Laundering legislation:

‘Small businesses exist first and foremost to make profits, and the government should be doing everything it can to help them focus on that goal. Micro businesses in particular are spending hours reading HMRC guidance, struggling with unfamiliar software and counterintuitive rates, limits, thresholds and exemptions, and this is restricting their output and productivity.

If the UK were to implement a clear and logical progression of tax compliance requirements set at distinct and memorable staging points in a business’s life-cycle, it would make life easier for the compliant majority of UK small-to-medium businesses and leave them with more capacity to return to making a living and earning a profit. Setting the VAT threshold at £100k would begin to meet that need by simplifying the tax administrative burden for all businesses that fall between the current threshold and the £100,000 limit, leaving fewer micro businesses to struggle with the related administrative demands. It aligns with Treasury proposals for Anti-Money Laundering obligations, and would be a suitably memorable threshold.’

Annual Investment Allowance should be permanently increased to £250K per year

Stability and certainty in taxation is essential to reduce the administrative burden on business:

‘ACCA has consistently called for stability and certainty in the tax system, and nowhere is this more important than for smaller businesses which cannot necessarily afford or justify regular professional advice to tell them when tax limits move up or down.

‘The Annual Investment Allowance (AIA) serves a dual purpose in simplifying the tax regime for the smallest business while encouraging capital investment for the next tranche up. The artificial concept of the capital/revenue divide has been all but eliminated for the smallest unincorporated businesses which qualify for cash accounting, and the similar relaxation for the next layer up should be stabilised at one suitably substantial point.

‘The cost to the exchequer of settling AIA at one consistent level of £250k would be recouped through the simplicity and stability that UK business would enjoy, compounded by the ever-accumulating benefits from the encouragement to invest in capital and generate and multiply profitable trading activities.’

Full Inheritance Tax exemption for Private Residence Relief (PRR)

Inheritance tax exemption for PRR would offer clarity and flexibility for individuals seeking to downsize in challenging circumstances:

‘The last Chancellor went some way towards developing this relief, which removes a potential inconsistency in the treatment of family homes up and down the country.

‘However, the current relief is unnecessarily complex, and there is considerable uncertainty among testators and advisers as to precisely how it will operate. While we welcome the existing efforts to protect those who downsize from any unfair effects, a simple exemption would offer a broadly similar outcome at the cost of far less complexity.’

Adopt OECD standard to tackle global tax avoidance

The adoption of the OECD standard against trans-national tax avoidance strategies, instead of UK or European deviations, would alleviate the administrative burden on the UK government likely to be stretched by Brexit negotiations:

‘Against all the other uncertainties facing the global economy, further revisions to the high level framework for taxation of multi-national corporations would be an unwelcome distraction at a time when business will be most concerned with responding to a volatile global political and economic backdrop, and the UK civil service will need its brightest and its best to focus upon the key issues of securing future trade options and growth opportunities.

‘Developing alternative models for cross-border taxation of multi-national corporations is hugely resource intensive –diverting that resource into revised models for the taxation of profits cannot be as productive in the short term as protecting and nurturing the underlying capacity to create those profits in the first place.

‘HMRC should stick as closely as possible to the existing BEPS (Base Erosion and Profit Shifting) framework; however justified criticisms of elements of BEPS may be, a single seamless model for global taxation will drive better outcomes than a patchwork of fragmented interpretations of “perfection.”’