Government must reform tax system or risk UK growth
If the government wants to stimulate growth and investment, they must reform the tax system and increase the ‘Corporate Interest Restriction’ threshold of £2m, say leading audit, tax and business advisory firm, Blick Rothenberg.
Neil Insull, a partner at the firm, said: “Growth requires investment and while Rachel Reeves talks of ‘unlocking private investment’, in particular through a new National Wealth Fund, she has so far ignored the need for a fundamental tax system reform to do this.”
He added: “Increasingly complex tax rules have been introduced over the years to counter the abuse of tax relief for non-commercially motived lending. Since 2017, there has been a restriction of tax relief of interest more generally – under the ‘Corporation Interest Restriction’ rules.”
Neil said: “These rules introduced a threshold of £2m net UK interest expense per year. This was to ensure that the tax relief abuse rules targeted UK multinationals while giving a clear path for any smaller company with interest expense below £2m. However, this threshold was set at a time when the Bank of England Base Rate was 0.25% meaning that most UK businesses could borrow up to £60m without a tax hit. Today, with the Base Rate at 5.25%, tax relief could be restricted on a loan of just £15m.”
He added: “This coupled with Labour’s manifesto promise to keep corporation tax at 25%, and no clear prospect of any reduction in that rate, means that many UK businesses will continue to operate in a high taxation environment for many years to come.”
Neil said: “If the government is serious in its ambition to stimulate investment, to unlock the restraints, and to ‘partner with business’ as Ms Reeves has promised, then it is time to reform the tax system. What better place to start simplifying and modernising the tax system than increasing the interest threshold above £2m to reflect the true cost of business finance.”
