Member Article

CBI calls for business involvement in tax policy

John Cridland, CBI director-general has said that UK businesses pay around a quarter of the country’s total tax revenue, and that a competitive tax system is needed for prosperity.

Launching a CBI report entitled Tax and British Business: Making the Case, Mr Cridland suggested that UK businesses are “perfectly entitled” to operate in low-tax jurisdictions, for legitimate purposes.

He stressed an important distinction should be drawn between transparent low-tax jurisdictions and ‘tax havens’ that hide behind secrecy.

Mr Cridland said that responsible business did not tolerate tax evasion, abusive tax arrangements with no commercial purpose, or ’black-box schemes, and welcomed proposals for a General Anti-Abuse Rule (GAAR).

He encouraged businesses to become involved in the tax policy debate, in order to “robustly defend” their record and advocate pro-growth tax policies which are in everybody’s interests.

The chancellor was commended for his decision to accelerate the reductions in corporation tax in the Budget, and Mr Cridland noted that by 2014, the UK’s headline rate of corporation tax will be the fourth lowest in the G20.

He added: “But in terms of effective tax rates, those which companies actually pay, there’s still great scope for improvement. When viewed through an effective tax rate lens, we’ll still be in the middle of the G20 pack by 2014.

“The CBI’s long-term ambition for the headline corporation tax rate is 18 per cent. This isn’t special pleading. It’s a level-headed analysis of what the economic multiplier effect would be – in other words, the impact taxes actually have on the ground and on people’s lives.

“Pound for pound, the economic impact of reducing corporation tax far exceeds increasing personal allowances, cutting VAT or raising government spending. It stimulates investment, which in turn leads to more long-term growth.”

Addressing the fine line between tax management and tax abuse, Mr Cridland, said: “Businesses making use of the tax reliefs the government makes available to them is called tax management. It’s an important function of the business world, along with things such as human resources and financial control.

“It’s a dangerous, if sometimes convenient, myth some people peddle that all tax management is abusive, and amounts to evasion. It doesn’t.

“Tax evasion – that is, not declaring taxable income due – is illegal, immoral and damages the integrity of honest businesses the world over.”

‘Black-box’ arrangements were condemned as artificial and were said to “tarnish honest business activity.

He also dismissed claims that HMRC were a “soft touch” and said: “I spend my working day talking to companies across the country.

“Frankly I don’t recognise the notion that Her Majesty’s Revenue & Customs is a soft touch. Far from it: tough, but fair.

“Reports about so-called ‘sweetheart deals’ between business and HMRC are wide of the mark. The ‘tax gap’ between what should be collected and what actually is has been shrinking in recent years, and only £1.2bn of the total £35bn is attributable to corporation tax paid by the largest companies.”

David Elliott, Head of tax at KPMG in Newcastle, commented: “We are supportive of the content of John Cridland’s speech. A competitive tax environment is a critical way for the UK to demonstrate to investors the world over that we are open for business.

“The good news is that the overall thrust of recent tax policy does appear to have focused on this very issue of making the UK a friendly nation for domestic businesses and inward investors.

“In fact, the responses to a recent KPMG survey of large businesses indicate that the UK’s corporate tax competitiveness has turned a corner and is currently perceived as being at its most attractive in 5 years.

“This is largely thanks to reforms around the way foreign profits are taxed and the government’s commitment to making the UK tax regime the most competitive in the G20.

“Having said that, it’s not an entirely rosy picture, given the UK’s tax competitiveness is still perceived to lag behind Ireland, the Netherlands, Switzerland and many of the new EU entrants in the East of Europe.

“The complexity and compliance burden remains too high and although fewer companies are actively looking at moving their tax residency, they have become more footloose.

“Of course there’s a lot more to a competitive tax regime than the headline corporate rate. The Chancellor used his latest Autumn Statement to boost growth, with the 100% capital allowance granted to certain Enterprise Zones - including those in the North East- and theintroduction of the Seed Enterprise Investment Scheme, with its very generous tax incentives, accompanied by the relaxation of strict rules governing the main Enterprise Investment Scheme.”

This was posted in Bdaily's Members' News section by Tom Keighley .