The main rate of corporation tax will be reduced in April 2015 to 20%, the joint lowest level in the G20, the Treasury said after George Osborne told MPs: ‘We are building the most competitive tax system in the world.’
Chris Sanger, Ernst & Young’s global head of tax policy, said the UK’s tax regime was already attracting more jobs and investment. ‘This latest step reinforces the message that Britain is open for business,’ he said.
The chancellor said: ‘In Germany, the corporate tax rate is 29%. In France it is 33%. In the United States it’s 40%. Here in Britain we’ve cut corporation tax from the 28% we inherited to 21% next year.
‘But I want to go further. Today, I want us to send a message to anyone who wants to invest here, to create jobs here, that Britain is open for business. So in April 2015 we will reduce the main rate of corporation tax by another 1%. Britain will have a 20% rate of corporation tax – the lowest business tax of any major economy in the world.’
The chancellor added: ‘That’s a tax cut for jobs and growth. We will have achieved in one parliament in these difficult times the largest reduction in the burden of corporation tax in our nation’s history. And with it we will achieve major simplification of our business tax system. By merging the small company and main rates at 20p, we will abolish the complex marginal relief calculations between them, and give Britain a single rate of corporation tax for the first time since 1973.’
Stephen Coleclough, deputy president of the Chartered Institute of Taxation, said the further reduction was ‘obviously good news for larger businesses and for the image abroad of the UK’s tax system’.
‘It also has an important simplification benefit as the main rate and the small profits rate will be harmonised at 20%. There will no longer be a need for many medium-sized companies to spend time planning their affairs to minimise profits between £300,000 and £1.5m, which are currently taxed at a third, higher marginal rate. There will be no incentive for companies to, sometimes artificially, keep profits to under £300,000,’ he said.
‘The economic justification for having a lower rate for smaller companies has been wafer thin,’ Coleclough suggested.
Alex Henderson, tax partner at PwC, said: ‘The chancellor gets marks for sticking to his plans, emphasising Britain is open for business by cutting the corporation tax rate, and simplifying the system too.’ His colleague, corporate tax partner Stella Amiss, said: ‘The headline rate really does matter to international investors.’
But tax campaigners maintained that the UK government was doing too little to tackle tax avoidance by multinationals, although it is widely believed that international agreement is a pre-requisite for modernisation of the system.
The banking sector will not benefit from the reduction. The Treasury said: ‘To take account of the benefit to the banking sector of the additional reductions in corporation tax, the rate of the bank levy will increase to 0.142% from 1 January 2014. The levy ensures that banks make a fair contribution and reflects the risks they pose to the financial system and the wider economy.’
Matthew Barling, PwC banking tax partner, said: ‘The bank levy rate has now risen by over 80% since it was introduced in 2011. This is a major cost for banks operating in the UK and is not a good advert for the City of London's competitiveness as a global financial centre, particularly at a time when this is already under threat from other quarters.’
The Treasury said the UK’s modernised controlled foreign companies regime would strike ‘the right balance’ between making the corporate tax system more competitive and providing adequate protection of the UK tax base. ‘From April 2013, the patent box will give a reduced 10% rate of corporation tax on profits from patents, driving growth and investment in UK innovation,’ it added.
The ‘fair tax debate’
Ernst & Young’s Chris Sanger said: ‘Combined with confirmation of the general anti-abuse rule, and the UK’s commitment to participating in the OECD’s project on international taxation, the chancellor is making it clear that the UK is a competitive place to do business but that he expects all parties pay their fair share.
‘Clients have been telling us that the UK’s tax regime is an asset, but 67% of the tax professionals we surveyed prior to the Budget said that uncertainty created by the fair tax debate is a deterrent to increasing the level of their activities here. The chancellor’s Budget speech today will hopefully have helped to address some of these concerns.’
ActionAid UK’s head of advocacy, Melanie Ward, said the government and the opposition deserved credit for keeping the UK’s promise on foreign aid. ‘Just as UK aid saves lives, poor countries are increasing the money they raise domestically through tax. But the same accountancy tricks that cost the UK billions are being used by British firms operating in the developing world,’ she said.
‘After much tough talk from the chancellor, the tax avoidance measures announced today are nothing more than tinkering at the edges. They are not designed to tackle the vast majority of tax avoidance techniques by multinationals, either in the UK or abroad.’
Ward suggested that the chancellor had shown ‘little appetite’ to start the crack-down [on tax avoidance] at home, ‘despite polling showing that around three quarters of the public think it should, echoing recommendations from the UN, IMF and OECD.’
She said Osborne should use the Finance Bill ‘to ensure UK multinationals have to disclose any tax avoidance around the world – helping both the UK and the poorest countries to raise the revenues needed to fight poverty and end hunger’.
However, Martin Lambert, head of corporate and international tax at Grant Thornton UK, said the UK government’s plans to work with the OECD seemed ‘a sensible step’ that would ‘help to ensure a fair tax regulatory system and provide a stable compliance platform for multinationals operating in the UK’.
The main rate of corporation tax will be reduced in April 2015 to 20%, the joint lowest level in the G20, the Treasury said after George Osborne told MPs: ‘We are building the most competitive tax system in the world.’
Chris Sanger, Ernst & Young’s global head of tax policy, said the UK’s tax regime was already attracting more jobs and investment. ‘This latest step reinforces the message that Britain is open for business,’ he said.
The chancellor said: ‘In Germany, the corporate tax rate is 29%. In France it is 33%. In the United States it’s 40%. Here in Britain we’ve cut corporation tax from the 28% we inherited to 21% next year.
‘But I want to go further. Today, I want us to send a message to anyone who wants to invest here, to create jobs here, that Britain is open for business. So in April 2015 we will reduce the main rate of corporation tax by another 1%. Britain will have a 20% rate of corporation tax – the lowest business tax of any major economy in the world.’
The chancellor added: ‘That’s a tax cut for jobs and growth. We will have achieved in one parliament in these difficult times the largest reduction in the burden of corporation tax in our nation’s history. And with it we will achieve major simplification of our business tax system. By merging the small company and main rates at 20p, we will abolish the complex marginal relief calculations between them, and give Britain a single rate of corporation tax for the first time since 1973.’
Stephen Coleclough, deputy president of the Chartered Institute of Taxation, said the further reduction was ‘obviously good news for larger businesses and for the image abroad of the UK’s tax system’.
‘It also has an important simplification benefit as the main rate and the small profits rate will be harmonised at 20%. There will no longer be a need for many medium-sized companies to spend time planning their affairs to minimise profits between £300,000 and £1.5m, which are currently taxed at a third, higher marginal rate. There will be no incentive for companies to, sometimes artificially, keep profits to under £300,000,’ he said.
‘The economic justification for having a lower rate for smaller companies has been wafer thin,’ Coleclough suggested.
Alex Henderson, tax partner at PwC, said: ‘The chancellor gets marks for sticking to his plans, emphasising Britain is open for business by cutting the corporation tax rate, and simplifying the system too.’ His colleague, corporate tax partner Stella Amiss, said: ‘The headline rate really does matter to international investors.’
But tax campaigners maintained that the UK government was doing too little to tackle tax avoidance by multinationals, although it is widely believed that international agreement is a pre-requisite for modernisation of the system.
The banking sector will not benefit from the reduction. The Treasury said: ‘To take account of the benefit to the banking sector of the additional reductions in corporation tax, the rate of the bank levy will increase to 0.142% from 1 January 2014. The levy ensures that banks make a fair contribution and reflects the risks they pose to the financial system and the wider economy.’
Matthew Barling, PwC banking tax partner, said: ‘The bank levy rate has now risen by over 80% since it was introduced in 2011. This is a major cost for banks operating in the UK and is not a good advert for the City of London's competitiveness as a global financial centre, particularly at a time when this is already under threat from other quarters.’
The Treasury said the UK’s modernised controlled foreign companies regime would strike ‘the right balance’ between making the corporate tax system more competitive and providing adequate protection of the UK tax base. ‘From April 2013, the patent box will give a reduced 10% rate of corporation tax on profits from patents, driving growth and investment in UK innovation,’ it added.
The ‘fair tax debate’
Ernst & Young’s Chris Sanger said: ‘Combined with confirmation of the general anti-abuse rule, and the UK’s commitment to participating in the OECD’s project on international taxation, the chancellor is making it clear that the UK is a competitive place to do business but that he expects all parties pay their fair share.
‘Clients have been telling us that the UK’s tax regime is an asset, but 67% of the tax professionals we surveyed prior to the Budget said that uncertainty created by the fair tax debate is a deterrent to increasing the level of their activities here. The chancellor’s Budget speech today will hopefully have helped to address some of these concerns.’
ActionAid UK’s head of advocacy, Melanie Ward, said the government and the opposition deserved credit for keeping the UK’s promise on foreign aid. ‘Just as UK aid saves lives, poor countries are increasing the money they raise domestically through tax. But the same accountancy tricks that cost the UK billions are being used by British firms operating in the developing world,’ she said.
‘After much tough talk from the chancellor, the tax avoidance measures announced today are nothing more than tinkering at the edges. They are not designed to tackle the vast majority of tax avoidance techniques by multinationals, either in the UK or abroad.’
Ward suggested that the chancellor had shown ‘little appetite’ to start the crack-down [on tax avoidance] at home, ‘despite polling showing that around three quarters of the public think it should, echoing recommendations from the UN, IMF and OECD.’
She said Osborne should use the Finance Bill ‘to ensure UK multinationals have to disclose any tax avoidance around the world – helping both the UK and the poorest countries to raise the revenues needed to fight poverty and end hunger’.
However, Martin Lambert, head of corporate and international tax at Grant Thornton UK, said the UK government’s plans to work with the OECD seemed ‘a sensible step’ that would ‘help to ensure a fair tax regulatory system and provide a stable compliance platform for multinationals operating in the UK’.
