By Sam Clarke | 7 November, 2023

Majority of businesses expect taxes to rise

Companies are warning that taxes are likely to rise for businesses after a general election, a marked shift in mood from just four months ago, while HMRC service levels seen as problematic

More than three quarters of businesses (77%) expect to pay the same or higher taxes after the next general election, while just under a quarter (23%) expect business taxes to reduce, found a BDO survey of 500 mid-market businesses.

The mood has shifted quickly, after a similar BDO survey in July suggested that a majority of businesses (61%) thought that the UK’s business tax environment would improve after a general election.

This change in sentiment may reflect a growing appreciation of the state of the public finances, the outlook for interest rates and the prospects for political change.

While it has been made clear by the Chancellor Jeremy Hunt that tax cuts are not likely to be on the agenda at the Autumn Statement on 22 November, when presented with a number of options, four in 10 respondents (38%) said investment in HMRC service levels should be the top priority.

This came ahead of simplifying tax rules (35%) and cutting government spending (27%).

The call for investment in HMRC reflected the findings of a recent survey conducted by the Chartered Institute of Taxation (CIOT) which identified widespread dissatisfaction with HMRC service levels, with a majority of respondents saying that poor service levels were making it harder to do business.

When asked about future tax changes, should economic conditions improve, the most popular call was for new green tax breaks (31%). This came ahead of demands to cut the headline rate of corporation tax (28%), to make the 100% first year capital allowance permanent (25%) and to cut employers’ NIC (15%).

On a similar green theme, almost three quarters of respondents (74%) said they would support the introduction of a new UK carbon border tax to prevent companies from offshoring their carbon emissions.

The survey also identified a high degree of concern among SMEs about the prospects for a reduction in the rates of R&D tax relief, with a high proportion of respondents (85%) saying they may look to move their R&D activities out of the UK.

Jonathan Hickman, a tax partner at BDO said: ‘Set against a very challenging fiscal backdrop, the Chancellor has already warned that tax cuts are off the table at the Autumn Statement. There appears to be a growing – some might say grudging – acceptance among businesses that the current high levels of business taxation may be here to stay and could even rise post the general election.

‘Businesses do, however, want to see more investment in HMRC so that service levels can improve, as well as a better designed, simpler tax system.

‘The proposed reforms to the UK’s complex R&D tax regime, which we may hear more about at the Autumn Statement, will provide an indication of the government’s commitment to tax simplification.

‘Our survey also shows an encouraging willingness among middle market businesses to reduce their environmental impact, but they are looking for the government to introduce new green tax breaks to help them do so.’

Source: Accountancy Daily