Energising enterprise: reforming business taxes

Date
March 23, 2022
Issues
Organisation

If the UK’s productivity problem can be solved it will be solved by the choices Britain’s businesses make. Yet, government can play an important role in shaping what those decisions will be.

Currently, the UK’s business tax system needlessly discourages investment and entrepreneurship. A better tax system is possible. This report shows what that system might look like, proposing reforms to Corporation Tax, Business Rates and business tax reliefs.

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Today, Bright Blue has published a new report: Energising enterprise: reforming business taxes in the UK. It is the fourth report from our cross-party, cross-sectoral Tax Commission. The report has been covered by The i Paper

As the Chancellor prepares to deliver the 2022 Spring Statement today, the report sets out how to reform the structure of business taxation to increase productivity, incentivise investment, and repair the public finances after Covid-19.  

The report proposes 14 new policies to improve business taxation across three areas: reforming Corporation Tax, reforming Business Rates, and reforming business tax reliefs: 

Reforming Corporation Tax

  • Move to the full immediate expensing of capital investment in new plants, machinery, and industrial buildings when the investment super-deduction expires in 2023.
  • Eliminate the bias in favour of debt-financed investment by excluding interest from the corporate tax system.
  • Allow corporate losses to be carried forward with a factor that adjusts for inflation and a safe rate of return on capital. The 50% annual cap of loss carry-forwards should also be eliminated.
  • The UK should lobby internationally for the OECD’s proposed agreement on a 15% global minimum corporate tax to use a cashflow base.

Reforming Business Rates

  • Business Rates should be replaced with a Business Land Tax levied on commercial landowners, based on unimproved land values.
  • To discourage tax motivated shifts from commercial to residential property, a new levy on commercial-to-residential transfers should be introduced.
  • Responsibility over Business Rates reliefs and exemptions for Small Businesses, Charities and Agriculture should be devolved to local authorities.

Reforming business tax reliefs

  • The Patent Box should be abolished.
  • The Film Tax Relief and High End TV Tax Relief should be abolished.
  • The Employment Allowance should be phased out over the next five years.
  • Venture capital reliefs such as Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs) should be maintained at current levels and the process for qualifying and accessing these reliefs should be streamlined in line with the Office for Tax Simplification’s proposals.
  • Social Investment Tax Relief should be preserved, but more resources should be invested in promoting the relief.
  • The scope of qualifying expenditures for R&D Tax Credit should be expanded to include cloud, data, and User Interface (UI)/User Experience (UX) costs as announced at the 2021 Autumn Budget.
  • In order to ensure value for public money, HM Treasury should adopt the German model for scrutinising tax reliefs.

Today, Bright Blue has published a new report: Energising enterprise: reforming business taxes in the UK. It is the fourth report from our cross-party, cross-sectoral Tax Commission. The report has been covered by The i Paper. As the Chancellor prepares to deliver the 2022 Spring Statement today, the report sets out how to reform the structure of business taxation to increase productivity, incentivise investment, and repair the public finances after Covid-19.  The report proposes 14 new policies to improve business taxation across three areas: reforming Corporation Tax, reforming Business Rates, and reforming business tax reliefs: Reforming Corporation Tax

  • Move to the full immediate expensing of capital investment in new plants, machinery, and industrial buildings when the investment super-deduction expires in 2023.
  • Eliminate the bias in favour of debt-financed investment by excluding interest from the corporate tax system.
  • Allow corporate losses to be carried forward with a factor that adjusts for inflation and a safe rate of return on capital. The 50% annual cap of loss carryforwards should also be eliminated.
  • The UK should lobby internationally for the OECD’s proposed agreement on a 15% global minimum corporate tax to use a cashflow base.

Reforming Business Rates

  • Business Rates should be replaced with a Business Land Tax levied on commercial landowners, based on unimproved land values.
  • To discourage tax motivated shifts from commercial to residential property, a new levy on commercial-to-residential transfers should be introduced.
  • Responsibility over Business Rates reliefs and exemptions for Small Businesses, Charities and Agriculture should be devolved to local authorities.

Reforming business tax reliefs

  • The Patent Box should be abolished.
  • The Film Tax Relief and High End TV Tax Relief should be abolished.
  • The Employment Allowance should be phased out over the next five years.
  • Venture capital reliefs such as Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs) should be maintained at current levels and the process for qualifying and accessing these reliefs should be streamlined in line with the Office for Tax Simplification’s proposals.
  • Social Investment Tax Relief should be preserved, but more resources should be invested in promoting the relief.
  • The scope of qualifying expenditures for R&D Tax Credit should be expanded to include cloud, data, and User Interface (UI)/User Experience (UX) costs as announced at the 2021 Autumn Budget.
  • In order to ensure value for public money, HM Treasury should adopt the German model for scrutinising tax reliefs.