Framework to provide greater certainty on tax policy

The Treasury has today published a draft Tax Framework for business. This is intended to provide greater certainty for large businesses about the Government’s approach to the development of tax policy. This is in response to complaints from business that the Government keep moving the goalposts with regard to tax.

The policy principles

Competitiveness - The Government will ensure that the UK remains an attractive location in which and from which to do business.

Fairness - The Government will seek to ensure fairness within and across the tax system, so that businesses pay their fair share of tax.

Minimising distortions – The Government will seek to maintain a tax system that minimises distortions to commercial decisions, while recognising that the tax system can have a role in supporting the UK’s competitive strengths and addressing market failures.

Simplicity – When developing and reviewing business tax policy, the Government will consider simplicity alongside other policy objectives, and will seek to avoid unnecessary complexity when designing and developing new business tax legislation.

Stability and certainty – The Government will avoid unnecessary changes to tax legislation. Where the Government proposes to amend legislation, it will set out the policy reasons for doing so and explain how the amended legislation will deliver these policy objectives.

Tax administration / Compliance costs – The Government will maintain its commitment to lowering compliance costs for business, while balancing this with the need to operate a cost-effective tax administration. It will continue to improve tax administration by developing the approach set out in HMRC’s Review of Links with Large Business and, for small and medium sized enterprises, in Delivering a New Relationship with Business.

Comment

There is a clear case for creating certainty for businesses. Indeed, in my experience, businesses are more interested in a jurisdiction with stability and a good infrastructure, than on the actual rates of tax (not to say that these aren’t important too). Nobody wants to invest time, effort and money in creating a structure for their business, only to find that 2 years later it doesn’t work because rules have changed.

It does, however, seem incongruous that a policy which is intended to represent stability contains an explicit reference to anti-avoidance rules. “Minimising distortions” is an un-veiled reference to the standard justification for bringing in changes to prevent tax avoidance. Anti-avoidance rules invariably create complexity, confusion and unintended consequences.

So, this policy does have the potential to be really useful and to attract business to the UK. The UK remains a great place to operate from and is still a global leader in the world of finance. Anything that the Government can do to improve our reputation is welcome.