Treasury Committee launches business rates inquiry

The Treasury Committee has launched an inquiry into the UK’s business rates system, in order to assess the impact of business rates on firms.

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The Committee intends to examine how changes in government policy have altered the business rates system. It will also analyse ‘how the current business rates system is operating’.

Additionally, the inquiry will assess the ‘economic justification’ for a property-based business tax, taking into account the impact of business rates on rental prices and property prices. The Treasury Committee also stated that it will consider alternatives to property-based business taxes, such as the proposed Digital Services Tax.

The Federation of Small Businesses (FSB) welcomed the inquiry. Mike Cherry, its National Chairman, said: ‘The FSB has worked with the government to secure a set of reforms to business rates since 2016 – doubling small business rate relief, linking annual rises to CPI, transitional relief, and now a high streets discount.

‘The tax, however, remains regressive, and not linked to ability to pay.

‘We welcome the inquiry as the next step in building on the recent work to help, and sort out a modern tax system that balances the need to fund public services with protecting our vibrant 5.6 million-strong small business community.’

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2018 Autumn Budget: Chancellor unveils Digital Services Tax

In his 2018 Autumn Budget speech, Chancellor Philip Hammond unveiled a so-called ‘Digital Services Tax’, which will require certain digital businesses to pay tax on sales generated in the UK.

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Over the past few years, a handful of large international companies have been subject to criticism for paying only small amounts of tax on their UK profits. The Chancellor previously stated that international agreements ‘need to be put into place’ to help tackle the issue; however, the Organisation for Economic Co-operation and Development (OECD), the body responsible for co-ordinating economic policy, has reportedly struggled to come to a decision on the matter.

The European Commission (EC) separately proposed an EU-wide 3% digital tax, but has so far failed to convince some EU member states.

The Digital Services Tax will take effect from April 2020, and will target ‘established technology giants’ with global revenues from in-scope business activities in excess of £500 million per annum, as opposed to tech start-ups.

Commenting on the tax in his Budget speech, Mr Hammond said: ‘It’s clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the UK without paying tax here in respect of that business.’