In its representation published ahead of the Budget on 30 October, ICAEW agrees that the government’s key priorities should be to boost growth and make the UK a clean energy superpower. It has set out actions that can be taken now to help achieve those missions.  

ICAEW’s Tax Faculty has contributed to the submission, calling on the government to: 

• deliver a business tax roadmap focused on growth;
• carry out a fundamental review of the effectiveness of the tax system;
• work with stakeholders to improve small business tax compliance; and
• clarify existing tax policy announcements. 

On 1 November 2024, the faculty will present a webinar looking at the main announcements from the Budget.  

Business tax roadmap 

ICAEW believes that a business tax roadmap is key to delivering greater certainty and encouraging businesses to grow and welcomes the government’s commitment to publish one. The business tax roadmap should set out how the government might react to different scenarios, and consider how best taxation can support investment, skills and the transition to net zero. 

On measures related to corporation tax, ICAEW says that consideration should be given to ensuring that tax relief is available for expenditure that is capital in nature but does not qualify for capital allowances. The government should also ensure that research and development tax (R&D) relief remains cost-effective for small and medium-sized businesses. ICAEW has briefed MPs separately on its concerns about HMRC’s compliance activity in respect of claims for R&D tax relief. 

ICAEW also encourages the government to consult on measures to: 

• improve certainty of employment status for tax. Employment status is difficult to determine in the UK and hinders growth, says ICAEW;
• make the VAT system more efficient. ICAEW has been looking at various options for reform and has volunteered to discuss them with the government;
• address those areas of the business rates system that discourage development;
• lighten the reporting burden on employers. If mandatory payrolling of benefits in kind is to be introduced, ICAEW recommends that it is rolled out in phases starting with benefits that are easier to payroll, such as healthcare; and 
• simplify venture capital tax reliefs, including the enterprise investment scheme. ICAEW believes that even modest reform of the reliefs could make them more effective in encouraging investment. 

Review of the tax system 

The UK tax system has become increasingly complex. ICAEW urges the government to undertake reviews to deliver simplification, improve HMRC service performance and processes and remove personal and business taxation cliff edges.  

ICAEW believes that the tax system has developed several fault lines that distort behaviour and discourage growth, and has made the following comments and recommendations: 

• Simplification must come before digitalisation. Too often the efficiencies that might be realised by digitalisation of the tax system are undermined by the fact that the tax system is too complex. 
• The government’s commitment to trialling advance rulings and clearances for major investment projects is welcome. Alongside this, the government should consider whether all of the motive defences and purpose tests written into legislation are still required.
• Capital taxes should support long-term business investment. If there are to be changes to inheritance tax, for example, the government should try to ensure they do not adversely impact investment in, or the development of small and medium-sized businesses.
• If the government is contemplating making significant changes to the pensions tax regime it should bear in mind that delivering those changes will take time. It is not always simple to adapt payroll and pension management systems, and to deliver employee education.
• The impact of changes on HMRC’s resources must be considered. In recent years, HMRC has been asked to do far more with less, and this has contributed to HMRC services levels being at an all-time low.  

Small business tax compliance 

HMRC’s figures suggest that the corporation tax gap for small businesses has been increasing steadily since 2011/12 and is considerably higher than the equivalent tax gaps for mid-sized and large businesses.   

The ICAEW has offered to work with government and HMRC to better understand the components of the small business tax gap, and how ICAEW might support HMRC’s efforts to reduce it. 

Existing tax policy announcements 

ICAEW has called on the government to announce its plans for tax policy consultations that have already concluded, such as the consultation on the taxation of employee ownership trusts. 

ICAEW has referred the government to its response to the call for evidence on the tax treatment of carried interest. ICAEW has urged the government to be mindful of the balance between reform of the current tax rules and the effect on the UK as a destination for private capital from around the world.  

The government has announced that it intends to proceed with the previous government’s plans to reform the taxation of non-UK domiciled individuals. ICAEW considers that the proposed date for changes of 6 April 2025 is too soon to implement such a significant change, particularly as the publication of draft legislation for consultation has been delayed. There is also a need to develop sensible transitional rules to avoid double taxation, otherwise there is a risk that individuals may leave the UK if that is the only way to avoid double taxation.  

Read more:

• Budget must take immediate action on growth, says ICAEW
• Read ICAEW's Budget submission in full