UK mulls royalty withholding tax to target digital economy

The UK government is consulting on an extension of withholding tax on royalty payments and is prepared to take unilateral action if insufficient progress is made on multilateral solutions to challenges posed by the digital economy, according to a position paper released alongside the autumn budget.

The challenge that digitisation poses for sustainability and fairness in the tax system can only be properly solved on an international basis, Chancellor of the Exchequer Philip Hammond told members of Parliament November 22. The position paper sets out the government’s emerging thinking about potential solutions, he said. “But in the meantime,” he added, “we will take what action we can.”

My news story for Tax Analysts, November 23 (paywall)

HMRC figures confirm higher corporation tax receipts

UK corporation tax receipts reached a record £49.5 billion in the financial year ending on March 31, an increase of 12 percent over the previous year, according to HM Revenue & Customs.

The increase was due to higher receipts from industrial and commercial, financial, and insurance sector companies, HMRC said in “Corporation tax statistics 2017″ an analysis published on August 24 of receipts from corporation tax, the bank levy, and the bank surcharge. The bank levy accounted for £3 billion and the bank surcharge, which was introduced in 2016, raised £1.1 billion. The diverted profits tax, introduced in 2015, is excluded because it is a different head of duty, HMRC noted, but the corporation tax figures will include any additional tax arising from behavioural change in response to its introduction …

Total corporation tax liabilities for 2015/16 were estimated at £43.4 billion, HMRC said, an increase of 1.4 percent on the previous year. The number of companies with a liability was 1.37 million, up 11.2 percent. The distribution of liabilities was “highly skewed”. Read more:

My news story for Tax Analysts, August 28 (paywall)

Look-through taxation for small companies is too complicated, say UK tax bodies

A proposed new tax system for small companies would increase uncertainty and confusion among small business owners and increase the scope for errors, UK tax experts said in response to consultation on the merits of a “look-through” model.

The UK already has two complicated systems, one for unincorporated businesses and one for corporate bodies, the ICAEW Tax Faculty noted a submission to the Office of Tax Simplification. “Rather than introduce a new model we would support simplification in each area,” the Faculty said. The Chartered Institute of Taxation said a key effect of a mandatory look-through system appeared to be to generate an increased tax yield from small business.

Read more: My news story for Tax Analysts, 8 October (paywall).

And there’s an interesting discussion on Twitter, in response to this tweet:

UK paves the way for public country-by-country reporting but stresses multilateral approach

Tax transparency campaigners have welcomed the UK government’s decision to accept a Finance Bill amendment that will enable HM Treasury to make regulations requiring large multinationals to publish country-by-country reports of their profits and taxes. The government, however, stressed that it intends to seek international agreement on a reporting model before using the new power.

Customers and taxpayers expect big companies to “play fair by them and by the country in which they operate,” Labour member of Parliament Caroline Flint said during a House of Commons debate on September 5. “It sometimes seems as though we are trying to catch jelly.”

Read more: My news story at Tax Notes 7 September (paywall) published by Tax Analysts.

New UK chancellor stresses commitment to reduce corporate tax rate

The UK economy is well placed to respond to the “shock” of last month’s EU referendum decision, newly appointed chancellor of the exchequer Philip Hammond told members of Parliament, saying that the government is committed to ensuring that the UK has a competitive corporate tax system that encourages innovation and business investment.

“We have already announced a reduction in corporation tax to 17 percent – the lowest rate in the G20 – and we are reducing the [property tax] business rates burden by £6.7 billion,” Hammond said July 19. He made no reference to his predecessor George Osborne’s aim, reported in the Financial Times shortly after the Brexit vote, to set a long-term target of less than 15 percent for the corporate rate.

Read more: My news story for Tax Notes, 22 July (paywall) published by Tax Analysts.

UK tax practitioners question 15% corporation tax target

After Chancellor of the Exchequer George Osborne said that he wants to set a target rate of less than 15 percent, tax practitioners suggested that further reductions in the U.K.’s corporation tax rate are not a top priority for businesses and may not have the desired effect.

Osborne is planning to “slash corporation tax” in order to woo businesses deterred from investing in a post-Brexit Britain, the Financial Times said in a July 3 report, noting that the move could alienate voters.

The Confederation of British Industry welcomed the announcement. “The chancellor is right to be considering moves that support economic growth and send out the signal that the U.K. is open for business at this critical time,” said CBI chief economist Rain Newton-Smith.

Read more: My news story for Tax Notes, 6 July (paywall) published by Tax Analysts. Stephanie Johnston contributed to this story.

Does the UK need even more corporation tax cuts?

George Osborne has told the Financial Times that he wants to set the lowest corporation tax rate of any major economy, announcing “a target of 15%”. The current rate is 20%. The paper reported that:

[Osborne] said Britain should “get on with it” to prove to investors that the country was still “open for business”.

The FT added that before the EU referendum the chancellor had “threatened to make £30bn of tax rises or spending cuts” in a post-Brexit emergency Budget:

He is now striking a more cautious note, awaiting official forecasts before announcing any new measures in the Autumn Statement.

The FT also noted that the move could alienate some voters, and Labour’s shadow chancellor John McDonnell has tabled an urgent question for today, 4 July, on the corporation tax proposal. Continue reading Does the UK need even more corporation tax cuts?

UK lawmakers approve corporation tax cut

The UK’s low corporation tax rate attracts jobs and investment, and it would be a grave mistake to cancel a further cut to 17 percent planned for 2020, Financial Secretary to the Treasury David Gauke warned members of Parliament before they approved the cut by a vote of 308 to 255.

A Committee of the Whole House completed its consideration of the finance bill June 28 after several hours of debate. MPs defeated by just 22 votes an amendment implementing public country-by-country reporting, and defeated by 37 votes a new clause on tax transparency moved by Margaret Hodge, Labour MP and former chair of the House of Commons Public Accounts Committee.

Read more: My news story for Tax Notes, 30 June (paywall) published by Tax Analysts.

Why do we have tax relief for losses?

Our tax code provides relief for losses so that the profits earned over the lifetime of a business are taxed once and only once. For example, a business has made trading profits of £550,000 and losses of £200,000 over five years, and has no other income. Its net profits are £350,000 and tax is paid on that amount, as shown below:

Losses

The company would be able to claim to have the loss in year 3 set first against the profit of year 2, leaving a smaller loss to carry forward, but the table shows how the carry forward of trade losses works. There are conditions, and special rules for banks and groups of companies.

Bringing forward allowable trading losses is not tax avoidance, and it is worth noting that a similar relief (with some important differences) is available to the self-employed. It is not just for companies.

Tax is ‘fast becoming the most toxic issue’ for successful companies

Britain’s corporate tax system is “broken”, according to Patrick Hosking, financial editor of The Times (paywall). “Nothing reflects this better than a tiny heart-shaped squiggle that is starting to appear in the advertising of British blue chips.”

The squiggle is the Fair Tax Mark logo, and SSE plc is the first FTSE 100 company to use it. The company has placed advertisements over the past few months in The Times, The Mirror, The Economist and elsewhere. One recent ad says that “at SSE we believe that everyone should pay their fair share of taxes”. Continue reading Tax is ‘fast becoming the most toxic issue’ for successful companies

Tax devolution: Draft Scotland Bill published

The UK government has published draft legislation to deliver more powers, including tax powers, to the Scottish parliament.

“Further work” is required and the new Scotland Bill will not be presented to parliament until after the general election. The draft legislation is in line with the Smith Commission recommendations, but some of the tax measures – for example, those required to deal with pension tax relief and gift aid – will be dealt with in secondary legislation. Continue reading Tax devolution: Draft Scotland Bill published