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By Ben Stupples
The U.K. Treasury’s new financial secretary is less than a week into the job, but he‘s already facing a tight fight against the clock to implement measures dropped from the 2017 Finance Bill.
The Treasury named Mel Stride, 55, Central Devon’s member of Parliament, as financial secretary June 13, giving him oversight of enacting delayed clauses from the 2017 Finance Bill. At 762 pages, the U.K.’s longest finance bill, it’s far from a quick read—and Parliament breaks for summer next month.
“I can only assume that, with the Conservatives re-elected, they will just go ahead and introduce the delayed Finance Bill clauses as soon as they can,” David Brookes, U.K. head of tax at accounting firm BDO, told Bloomberg BNA. “If the measures need further debate, it doesn’t give much time at all.”
In the Finance Act that U.K. lawmakers approved April 26, they introduced fewer than half of the 135 clauses from the finance bill, according to a review of the two documents by Bloomberg BNA.
U.K. Prime Minister Theresa May’s surprise call the week before for a snap election on June 8 left little time for lawmakers to scrutinize the bill, prompting them to slash the clauses.
On April 26, then-Financial Secretary Jane Ellison, who lost her seat June 8, said the government would legislate to introduce the dropped measures “at the earliest possible opportunity at the start of the next parliament.” They will make a “significant contribution” to public finances, she added.
In a June 14 email, a spokeswoman for Stride pointed to Ellison’s comments in response to an inquiry on when the government plans to introduce the delayed finance bill clauses.
After lawmakers break on July 20, “they’ll be back for a couple of weeks at the start of September before the party conferences,” Bill Dodwell, head of U.K. tax policy at accounting firm Deloitte, told Bloomberg BNA. “We probably won’t get a finance act, then, until around October or November.”
Out of the finance bill’s delayed measures, U.K. businesses are affected most by restrictions on the tax deductibility of corporate interest expense. The measure comes as part of the U.K.’s efforts to implement the Organization for Economic Cooperation and Development’s reform of global tax policy, and was the biggest revenue-raiser from businesses announced at the 2016 Budget, according to data compiled by Bloomberg BNA.
In addition, the U.K.’s finance bill includes clauses that will enable companies to carry forward losses for tax purposes. Companies will only be allowed to use losses against up to 50 percent of their profits subject to an allowance of 5 million pounds ($6.4 million).
“Interest deductibility will be high up there as a priority for the government as there’s a lot of private equity funding” in the U.K., said BDO’s Brookes. Expected to raise almost 4 billion pounds by 2021, “it’s a bit of a stealth tax as they’re not raising any headline rate by cutting deductions,” he added.
Although the Treasury estimates that it will cost the government as much as 280 million pounds by 2022, an equally significant clause in the 2017 Finance Bill is the U.K.’s plan to digitize its tax system by 2020.
Announced March 2015, the plan aims to remove bureaucratic form-filling through quarterly online updates, the U.K.’s tax authority said in a six-part consultation published in August. Yet with the first part of the digital system effective from April 2018, the timeline has come under increased scrutiny.
In a Jan. 10 report, the Treasury Select Committee cast doubt on the timetable, describing it as “wholly unrealistic,” as most businesses won’t be able to adapt to the system at a reasonable cost.
In a Feb. 17 report, the Institute of Chartered Accountants in England and Wales questioned how small businesses will benefit from the administrative burden of compulsory quarterly updates.
Since then, the government’s timetable for Making Tax Digital has come under further pressure after the measure was dropped, as revealed by Bloomberg BNA on April 24, from the 2017 Finance Bill.
But Edward Troup, the U.K. tax authority’s executive chairman, defended the government’s plans in the question-and-answer stage of a June 12 debate on the simplification of the U.K.’s tax system.
“Making Tax Digital is the first step towards a simpler tax system through technology,” Troup said.
In response, John Whiting, former tax policy director of the Treasury’s tax adviser, agreed that the plan to use technology “has to be the way forward,” but still questioned the current time frame.
“The direction may be right,” he said. But “my concern is the speed” of the tax system’s changes.
The appointment of Stride as the Treasury’s financial secretary comes after a poor general election for Theresa May’s Conservative Party. Expecting a landslide victory, the party lost 13 parliamentary seats after Jeremy Corbyn’s Labour secured 30 more from the U.K.’s last election two years ago.
Stride became an MP in 2010 after a career in trade exhibitions, conferences and publishing, according to his website. In his former role as deputy chief whip, he oversaw the government’s business in the House of Commons.
Responding to Stride’s appointment, Grant Thornton’s U.K. head of tax Jonathan Riley suggested in a June 13 tweet that the government’s “political flux” might enable a “calmer pace of tax change.”
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