On 30 October, the UK will see its first female Chancellor of the Exchequer, Rachel Reeves, deliver the new Labour Government’s first Budget in over 14 years. 

Following unprecedented turmoil in recent times, businesses in the UK crave a Budget that is short in overnight changes and high in detail on the direction of travel over the life of this Parliament.

That is not to say change is a bad thing, and achieving certainty can be impractical, but predictable change helps build confidence and promote stability. It is hoped that when the Roadmap for Business Taxation is published, it will give more guidance on when and how change might manifest. 

What Corporation Tax measures should we be expecting?

Based on the Labour Party’s Election Manifesto and Business Partnership for Growth we should expect the reaffirmation of commitments to:

• Capping the headline Corporation Tax rate to 25% through the life of the Parliament; and
• Maintenance of Full Expensing and Annual Investment Allowance on selected Capital Expenditure.

Does capping the headline Corporation Tax rate to 25% go far enough? 

Whilst a negative pledge like this is reassuring and predictable for UK corporate entities, it is hoped further clarity is given on what circumstances the rate may be reduced to make the UK more competitive. Yes, it may be the lowest headline rate in the G7 but not only is the UK competing with more than just the G7 countries, what other factor (considering the UK’s unique recent turmoil) does the UK have to help it stand out from the crowd and promote overseas investment into the UK? It used to be the low headline Corporation Tax rate - should it be so again?

The UK’s headline rate doesn’t tell the full story, there are multiple rates depending on which sector a company is in such as banking, oil extraction and residential property developers. The rate can also be influenced by the quantum of a company’s profits or by an incentive-based regime like the Patent Box. 

This is far from a simple tax regime for anyone, never mind fleet of foot multinationals that have discretion where to expand. Do these rates still achieve what they were set out to do? For example, the delta between quantum of profits at the small companies’ rate and the profits at which the headline rate kicks in, is disproportionately small compared to the complexity of the tax rules and compliance burden on the tax payer required to give effect to these two rates. Small profits also don’t necessarily apply to small companies so is it fit for purpose?

Taking into account the competitiveness (or otherwise) of the UK and the myriad of rates and rules to implement them, is there an argument to have a lower headline rate and remove the small companies’ rate?

What else would UK businesses like to see in respect of Corporation Tax?

The list of specific measures would be endless but quick wins could be achieved through improved administration:

• Improved interactions with HMRC - The introduction of CRMs (now CCMs) in HMRC for larger companies was one of the most successful initiatives in improving communication between the taxpayer and HMRC. Where this is still in place it works well but access has contracted, so further investment to expand this practice would help both businesses and HMRC alike. It is restricted to larger companies, and whilst it is not feasible to replicate for all business, thought should be given on how to help SMEs engage with HMRC. This could be in the form of increasing areas of the legislation where pre-clearance can be sought from HMRC or harnessing modern technology such as AI as a tool to support HMRC to engage directly with more businesses. Targeting SMEs in this way will help reduce the Tax Gap for a group where it continues to increase.
• Legislative simplification - The UK’s tax legislation is simply too long and certain areas can be described as patchwork of sticking plasters rather than a cohesive and readily understandable regime. Is this an opportune time to re-appointment of the Office of Tax Simplification (OTS) or similar body to look at simplifying the UK’s tax code? 
• Cashflow management and increased certainty for SMEs - This can be as simple as having increased resource to assist with processing tax repayments (and in particular for SMEs). Whilst timely tax repayments are preferred, would an interest supplement be more equitable if HMRC delay processing a repayment beyond a certain self-imposed deadline? Increasing the thresholds at which point businesses start to make accelerated estimated Corporation Tax payments is another consideration business might welcome. These thresholds have not been raised since its inception 25 years ago. There is an increased compliance burden to make such estimates and reduced cash flow certainty for businesses at a time when interest rates are high, and the UK is trying to encourage growth.

Some of these suggestions may only be a pipe dream. There will inevitably be some tax increases announced on Budget Day to close the +£20bn funding gap we’ve heard a lot about in the press. Current front runner is an increase in Employer’s National Insurance which would impact all employers. What everyone is hoping for is predictability and thus any surprises are left to the day after Budget Day and are limited only to those of a spooky nature for children guising on Halloween.    

Keep up to date with our Autumn Budget 2024 insights

Find out more from our team of sharp minds as we bring you further Autumn Budget predictions on Specialist Tax and Personal Tax. You can also visit our Budget Hub for further insights, including a break-down from the most recent Spring Budget.