ICAEW TAX REPRESENTATION 110/17

Transcription

1 ICAEW TAX REPRESENTATION 110/17 DELIVERING A TAX CUT FOR SMALL BUSINESSES: A NEW SMALL BUSINESS RATES RELIEF SCHEME FOR WALES ICAEW welcomes the opportunity to comment on the delivering a tax cut for small businesses: a new small business rates relief scheme for Wales consultation published by the Welsh Government on 21 July This response of 13 October 2017 has been prepared on behalf of ICAEW by the Tax Faculty. Internationally recognised as a source of expertise, the Faculty is a leading authority on taxation. It is responsible for making submissions to tax authorities on behalf of ICAEW and does this with support from over 130 volunteers, many of whom are well-known names in the tax world. We attended a meeting with the relevant HMRC and HM Treasury staff to discuss these provisions. We should be happy to discuss any aspect of our comments and to take part in all further consultations on this area. The Institute of Chartered Accountants in England and Wales Chartered Accountants Hall Moorgate Place London EC2R 6EA UK T +44 (0) F +44 (0) icaew.com

2 ICAEW is a world-leading professional accountancy body. We operate under a Royal Charter, working in the public interest. ICAEW s regulation of its members, in particular its responsibilities in respect of auditors, is overseen by the UK Financial Reporting Council. We provide leadership and practical support to over 147,000 member chartered accountants in more than 160 countries, working with governments, regulators and industry in order to ensure that the highest standards are maintained. ICAEW members operate across a wide range of areas in business, practice and the public sector. They provide financial expertise and guidance based on the highest professional, technical and ethical standards. They are trained to provide clarity and apply rigour, and so help create long-term sustainable economic value. Copyright ICAEW 2017 All rights reserved. This document may be reproduced without specific permission, in whole or part, free of charge and in any format or medium, subject to the conditions that: it is appropriately attributed, replicated accurately and is not used in a misleading context; the source of the extract or document is acknowledged and the title and ICAEW reference number are quoted. Where third-party copyright material has been identified application for permission must be made to the copyright holder. For more information, please contact ICAEW Tax Faculty: taxfac@icaew.com icaew.com

3 Major Points 1. ICAEW welcomes the opportunity to comment on the delivering a tax cut for small businesses: a new small business rates relief scheme for Wales consultation published by the Welsh Government on 21 July ICAEW supports the policy proposals for delivering a new small business rates relief (SBRR) scheme for Wales. We note that it is intended that the scheme, to be introduced from 1 April 2018 for eligible small businesses, will be permanent, so giving much needed certainty for those businesses as they plan ahead, particularly in areas where trading conditions are particularly challenging. 3. We note that although described as permanent at the current time, the scheme will be kept under review and will be adapted to changing business needs and Government priorities as well as wider fiscal events. Inevitably this will happen and we ask that whenever changes are being considered, that sufficient consultation with, and advance notice is given to, those likely to be affected. 4. Business rates look set to continue to be a major burden on businesses. However, the nature of the tax is a charge based on a bricks and mortar that is not aligned with value created in the digital age. The growth of internet businesses has raised major questions about the fairness of the system and the need for reform to ensure that there is a level playing field with more traditional businesses. 5. The move to Making Tax Digital will also bring business rates clearly into the mainstream. 6. A thorough review of the business rates system should be undertaken to consider whether there is need for reform to ensure that there is a level playing field with more traditional businesses. We recommend that such a review takes place before making changes to various elements of the current system, such as SBRR. 3

4 RESPONSES TO SPECIFIC QUESTIONS POTENTIAL SCOPE FOR A CONSTRUCTION SERVICES REVERSE CHARGE Q1: The Welsh Government is interested in your views about the current and future funding of SBRR in Wales, including how the multiplier operates. 7. The current SBRR system in Wales is funded entirely by the Welsh government which differs from the system adopted in England and Scotland whereby a higher multiplier applies to larger businesses to part-fund the relief to smaller businesses. 8. Before considering whether this system should be adopted in Wales it would be important to establish how successful it is in England in Scotland and whether the subsidy works fairly in practice. 9. To support small businesses further, and encourage the development and use of entrepreneurial hubs, the Welsh government could consider exempting entrepreneurial hubs and incubator premises from business rates. 10. Currently the hub owner/landlord has to pay business rates for the property. The cost is then passed on to the start-up businesses who occupy the space in that building as part of their rent. If each business was assessed for their part of the building separately the cost would undoubtedly be lower as individually each business would qualify for SBRR. 11. The current process (whereby the local authority automatically applies SBRR based on the rates calculated) provides relief to bigger businesses that happen to operate out of small premises. One way to overcome this would be to set some suitable criteria to define a small business and then ask that businesses to self-certify. Businesses falling outside of the criteria would be required to inform the local authority and pay the full rates amount without SBRR. Q2: Do you agree that a limit should be introduced on the amount of relief a business occupying multiple small properties in Wales can receive? If so, to what extent do you think this should be restricted? 12. We do not consider that the impact of redistributing some of the total 110m financial assistance in this way would have a sufficiently noticeable impact on the economic contribution of the businesses which might benefit. 13. While in theory this seems simple, the practicalities are likely to outweigh any benefits. The current approach in Wales is simple and well understood. 14. The proposal seems focussed on releasing a pool of funding which can be redistributed to selected sectors or areas. It has chosen as its base and limiting factor the number of properties owned by a single business without regard to their turnover of profitability. It is not explained why this is selected rather than the overall value of those properties for instance, which would give a different result. It is a simple measure, but the economic benefits are unclear. Opening, for example, the 10 th branch of a family owned chain of newsagents is as likely to result in the same outcome to an area as if it was owned by a single new enterprise, but in the first example SBRR might not be available when it would be in the second example. It may also encourage fragmentation. Q3: What are the associated administrative and technical implications of the Welsh Government s preferred approach which need to be considered? 4

5 Administrative implications 15. Any change to the current system will automatically introduce more complexity and add to the administrative burden. 16. The across Wales option would indeed be difficult to administer, because it would be difficult to see how many other properties across Wales were already benefitting. 17. As noted, an application based scheme would add to the burden both for businesses and also for local authorities. 18. The business itself might use a decentralised management model and not know itself who had claimed rate relief; the order in which the applications were submitted would matter. It might be that the more efficient parts of a decentralised business submitted claims earlier, so depriving other less cash rich units in the same business from being able to benefit. It would also mean that the higher valued premises within the business should submit their claims first, so adding another layer of complexity. 19. It would also be necessary to have a system of sanctions and associated appeals and protections to support an application based model. Definitions 20. The definition of a separate business would need careful consideration. Could the association of two different businesses owned by the same proprietor be caught? Or could those owned by different spouses or other family member? If not, then the system would be open to fragmentation, ie, setting up a series of companies to own separate businesses to maximise the relief. 21. The definition of a separate property would be important under either option and there could be occasions where as a business seeks to find new premises, it makes a decision based on the SBRR property count rather than what is best for the business. The recent controversy over the staircase tax is an example of where the definition of a property has caused difficulties. 22. As more complexity is introduced, so too is the need for more anti avoidance legislation. 23. We are not convinced that either method of restricting relief will significantly improve the targeting of this relief. 24. We note that franchises will be unaffected. Q4: Comments are invited about the effects (whether positive or adverse) such a limit could have on ratepayers affected or excluded from this limit. 25. See comments above in relation to question two. WHAT SORT OF SERVICES SHOULD A REVERSE CHARGE APPLY TO? Q5: Are there any types of business you feel should be excluded from the new scheme and, if so, why? 26. Further exclusions would add to the administrative complexity of the scheme and introduce more definitions with cliff edges. Q6: What are the administrative implications of introducing further exceptions? 27. Further exceptions bring more complexity and should be kept to a minimum. 5

6 SHOULD THERE BE A THRESHOLD? Q7: If the Welsh Government released resources from the current scheme to provide additional support to eligible small businesses under the new scheme, based on the options described in paragraph 4.24, how should these resources be reinvested to support small businesses more effectively? 28. Any business will welcome a reduction in business rates, however redistributing SBRR in the manner suggested could merely give additional support to businesses which are financially solvent and do not need help. Q8: Are there any administrative or technical implications which need to be considered in changing the current thresholds for relief? 29. No comment. Q9: What are the potential administrative and technical implications of introducing a new permanent scheme and its interactions with transitional relief? 30. Changing the thresholds by a small margin makes allocation of the relief to long established businesses a lottery where the rateable value of the property they use is close to a threshold. A business which has relief one year can anticipate and budget for a possible SBRR change as its revaluation becomes due, but you would not expect to lose the relief mid-way through the period as a result of moving the goal posts. Transitional provisions, while helpful, add administrative complexity and are confusing for less numerate. Q10: We are seeking views on removing the enhanced relief for retail premises with a rateable value between 10,501 and 11, No comment. Q11: Are there any administrative or technical implications which need to be considered in changing the relief for the retail sector? 32. We do not know the economic consequences of withdrawing this relief, but similar concerns to our comment on question nine are relevant. Q12: We are seeking views on whether the childcare sector should be provided with additional relief, over and above that provided under the current SBRR scheme in order to support the delivery of the 30-hour childcare commitment. 33. No comment. Q13: If additional support were provided to the childcare sector, considering the options described in 4.39 how should this be delivered via the SBRR scheme? 34. No comment. Q14: Are there any administrative or technical implications which need to be considered in providing additional relief to this sector? 35. We presume that if either of the reliefs described in para 4.15 to 4.17 is implemented that childcare premises would be exempt. If the decision to give additional relief to this sector is to align it with Taking Wales Forward, it would seem counter intuitive to then restrict the relief for a larger business which runs more nurseries. 6

7 Q15: We are seeking views on the possible introduction of time-limited support for certain ratepayers which is gradually withdrawn. What are the advantages and disadvantages of such an approach? 36. Time limiting support in general would allow a business a time period within which to establish itself. There might be exceptions where longer periods of support are needed, for example, to meet a local need as suggested, but this would mean that limited funds would be available for new businesses and is a policy decision for local government. Q16: The Welsh Government is seeking general views on providing support to businesses that support, or are working towards supporting, wider Welsh Government objectives and invites proposals for developing the scheme in future years. 37. No comment. Q17: The Welsh Government would like to know your views on the effects these proposals would have on the Welsh language, specifically on: i. Opportunities for people to use Welsh; and ii. 38. No comment. On treating the Welsh language no less favourably than English. What effects do you think there would be? How could positive effects be increased, or negative effects be mitigated? Q18: Please also explain how you believe the proposed policy could be formulated or changed so as to have: i. Positive effects or increased positive effects on opportunities for people to use the Welsh language and on treating the Welsh language no less favourably than the English language; and ii. 39. No comment. No adverse effects on opportunities for people to use the Welsh language and on treating the Welsh language no less favourable than the English language. 7

8 8