The UK has become less attractive in recent years for firms that ‘rely more’ on capital allowances for plant and machinery and industrial buildings, according to research published by the Oxford University Centre for Business Taxation.
The coalition’s programme for government, published in May 2010, declared: ‘Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.’
The Centre for Business Taxation (CBT) observed that the government would like to ‘rebalance the UK economy’ towards more manufacturing.
‘But manufacturing requires considerable investment in fixed assets. If the government wants to create more favourable conditions for this type of investment, a policy of cutting allowances is misguided,’ it said.
'Reforms which reduce allowances as a way of paying for rate reductions mainly redistribute the tax burden between companies, rather than making the tax system as a whole more competitive.’
The UK’s corporate tax system is ranked ninth in the G20 for effective average tax rates (EATR), according to the CBT.
The EATR indicates ‘the size of the disincentives created by corporation taxes to locate a discrete activity in a particular country’, said the authors of G20 Corporate tax ranking 2011.
‘The government’s reforms would improve the UK’s ranking to fifth – but only if no other G20 country also reduced its effective rate,’ the CBT concluded. The trends of the last decade suggest, however, that ‘other countries will also change their tax system’.
‘The main problem for the UK is that allowances for capital expenditure are the lowest in the G20 ... Reforms which reduce allowances as a way of paying for rate reductions mainly redistribute the tax burden between companies, rather than making the tax system as a whole more competitive.’
The UK’s EATR at the beginning of 2011 was 26.3%, according to the report. Russia had the lowest rate at 16.7%, and the US was ranked 18thwith an EATR of 34.9%.
The CBT assessed ‘the current competitiveness’ of the UK corporate tax system relative to other G20 countries using two indicators – the EATR and the effective marginal tax rate (EMTR), a measure of ‘the disincentive to undertake a greater quantity of investment’.
It found that ‘the UK has an EMTR of just under 23%, which ranks the UK 15th out of the 19 countries’.
It observed: ‘The weaker position of the EMTR is due to the fact that, although the UK tax rate is relatively low by international standards (in 7th position), the UK is the least generous G20 country with respect to allowances for capital investment. Recent tax reforms that have reduced allowances have tended to raise the EMTR , despite corresponding cuts in the tax rate.’
The UK has become less attractive in recent years for firms that ‘rely more’ on capital allowances for plant and machinery and industrial buildings, according to research published by the Oxford University Centre for Business Taxation.
The coalition’s programme for government, published in May 2010, declared: ‘Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.’
The Centre for Business Taxation (CBT) observed that the government would like to ‘rebalance the UK economy’ towards more manufacturing.
‘But manufacturing requires considerable investment in fixed assets. If the government wants to create more favourable conditions for this type of investment, a policy of cutting allowances is misguided,’ it said.
'Reforms which reduce allowances as a way of paying for rate reductions mainly redistribute the tax burden between companies, rather than making the tax system as a whole more competitive.’
The UK’s corporate tax system is ranked ninth in the G20 for effective average tax rates (EATR), according to the CBT.
The EATR indicates ‘the size of the disincentives created by corporation taxes to locate a discrete activity in a particular country’, said the authors of G20 Corporate tax ranking 2011.
‘The government’s reforms would improve the UK’s ranking to fifth – but only if no other G20 country also reduced its effective rate,’ the CBT concluded. The trends of the last decade suggest, however, that ‘other countries will also change their tax system’.
‘The main problem for the UK is that allowances for capital expenditure are the lowest in the G20 ... Reforms which reduce allowances as a way of paying for rate reductions mainly redistribute the tax burden between companies, rather than making the tax system as a whole more competitive.’
The UK’s EATR at the beginning of 2011 was 26.3%, according to the report. Russia had the lowest rate at 16.7%, and the US was ranked 18thwith an EATR of 34.9%.
The CBT assessed ‘the current competitiveness’ of the UK corporate tax system relative to other G20 countries using two indicators – the EATR and the effective marginal tax rate (EMTR), a measure of ‘the disincentive to undertake a greater quantity of investment’.
It found that ‘the UK has an EMTR of just under 23%, which ranks the UK 15th out of the 19 countries’.
It observed: ‘The weaker position of the EMTR is due to the fact that, although the UK tax rate is relatively low by international standards (in 7th position), the UK is the least generous G20 country with respect to allowances for capital investment. Recent tax reforms that have reduced allowances have tended to raise the EMTR , despite corresponding cuts in the tax rate.’
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