David Gauke set out the rationale behind the government’s decision to reduce the main corporation tax rate to 20% from 2015, as MPs debated the Finance Bill in a public bill committee last week. The committee was debating an amendment tabled by the Conservative MP Nigel Mills, who noted that Gauke did not rule out further reductions.
Clause 4 sets the rate at 21% for the financial year 2014. The amendment would have required the chancellor to instruct the Office for Tax Simplification to publish by 31 March 2014 proposals for a “new, simplified” corporation tax code – specifically addressing “the potential for a simpler tax code to reduce tax avoidance”.
Mills said the amendment would produce ideas as to where the corporation tax roadmap could go after April 2014 and what further measures could be taken to “make our business tax system truly one of the most attractive in the world”.
He noted that corporation tax yields were declining: “We should try to get to a simpler system that is easier to comply with, and one that makes it easier for HMRC to check that taxpayers are complying with it.”
There was general agreement, he said, that the tax code was too long and the rules were too complex. “The Office of Tax Simplification did some work a year or so ago and worked out that, at that time, there were 17,795 pages of tax legislation in Tolley’s guide. However, to be fair, only 6,102 of those are actually substantive legislation that taxpayers have to comply with.”
Mills was referring to the OTS’s analysis of Tolley’s Yellow and Orange Tax Handbooks. As Tax Journal reported last year, the OTS said the length of legislation did not necessarily add to the complexity of tax law.
However, the OTS study was based on the legislation for 2010/11, so it preceded Finance Acts 2011 and 2012 and Finance Bill 2013.
Gauke did not think it would be right for the committee to “mandate or order the OTS to engage in particular reviews”. The OTS had a very full work programme, he said.
Gauke told the committee that the 21% rate would be the fourth lowest in the G20. Clause 6, setting the main rate at 20% for financial year 2015, “will take us down to the lowest level”, he said. As a whole, the policy of reducing corporation tax “supports our objective to deliver a more competitive corporate tax system to provide the right conditions for business investment and growth”.
Gauke added: “On top of our reforms of the corporation tax rate, we have reformed the controlled foreign companies regime, and introduced the patent box and the above-the-line research and development tax credits. The measures that we are discussing today build on the progress made so far, and support our ambition to have the most competitive tax system in the G20. Of course, in doing that we also want to ensure that we have a tax system whereby businesses pay the tax that is due under the law. That is why we are driving forward work with the G20 to ask the OECD to undertake improvements to the international tax rules, to prevent base erosion and profit shifting.”
Further reducing the main rate would encourage investment from overseas, as well as encouraging businesses that have left Britain to return, Gauke argued.
Asked at what point the reduction should stop, he noted that there were “certain advantages” in having 20% as a rate: “That is consistent with the small profits rate.”
Mills noted that Gauke had not ruled out the possibility of taking the main corporation tax below 20%.
Clause 5, setting the small profits rate and fractions for the financial year 2013, was also passed without amendment.
Gauke said: “Looking ahead, in the Finance Bill 2014 we will legislate to remove the small profits rate from 1 April 2015, to create a single unified rate of corporation tax of 20%. Unification of the main rate and small profits rate itself creates a simpler, more competitive and less burdensome corporate tax regime.”
David Gauke set out the rationale behind the government’s decision to reduce the main corporation tax rate to 20% from 2015, as MPs debated the Finance Bill in a public bill committee last week. The committee was debating an amendment tabled by the Conservative MP Nigel Mills, who noted that Gauke did not rule out further reductions.
Clause 4 sets the rate at 21% for the financial year 2014. The amendment would have required the chancellor to instruct the Office for Tax Simplification to publish by 31 March 2014 proposals for a “new, simplified” corporation tax code – specifically addressing “the potential for a simpler tax code to reduce tax avoidance”.
Mills said the amendment would produce ideas as to where the corporation tax roadmap could go after April 2014 and what further measures could be taken to “make our business tax system truly one of the most attractive in the world”.
He noted that corporation tax yields were declining: “We should try to get to a simpler system that is easier to comply with, and one that makes it easier for HMRC to check that taxpayers are complying with it.”
There was general agreement, he said, that the tax code was too long and the rules were too complex. “The Office of Tax Simplification did some work a year or so ago and worked out that, at that time, there were 17,795 pages of tax legislation in Tolley’s guide. However, to be fair, only 6,102 of those are actually substantive legislation that taxpayers have to comply with.”
Mills was referring to the OTS’s analysis of Tolley’s Yellow and Orange Tax Handbooks. As Tax Journal reported last year, the OTS said the length of legislation did not necessarily add to the complexity of tax law.
However, the OTS study was based on the legislation for 2010/11, so it preceded Finance Acts 2011 and 2012 and Finance Bill 2013.
Gauke did not think it would be right for the committee to “mandate or order the OTS to engage in particular reviews”. The OTS had a very full work programme, he said.
Gauke told the committee that the 21% rate would be the fourth lowest in the G20. Clause 6, setting the main rate at 20% for financial year 2015, “will take us down to the lowest level”, he said. As a whole, the policy of reducing corporation tax “supports our objective to deliver a more competitive corporate tax system to provide the right conditions for business investment and growth”.
Gauke added: “On top of our reforms of the corporation tax rate, we have reformed the controlled foreign companies regime, and introduced the patent box and the above-the-line research and development tax credits. The measures that we are discussing today build on the progress made so far, and support our ambition to have the most competitive tax system in the G20. Of course, in doing that we also want to ensure that we have a tax system whereby businesses pay the tax that is due under the law. That is why we are driving forward work with the G20 to ask the OECD to undertake improvements to the international tax rules, to prevent base erosion and profit shifting.”
Further reducing the main rate would encourage investment from overseas, as well as encouraging businesses that have left Britain to return, Gauke argued.
Asked at what point the reduction should stop, he noted that there were “certain advantages” in having 20% as a rate: “That is consistent with the small profits rate.”
Mills noted that Gauke had not ruled out the possibility of taking the main corporation tax below 20%.
Clause 5, setting the small profits rate and fractions for the financial year 2013, was also passed without amendment.
Gauke said: “Looking ahead, in the Finance Bill 2014 we will legislate to remove the small profits rate from 1 April 2015, to create a single unified rate of corporation tax of 20%. Unification of the main rate and small profits rate itself creates a simpler, more competitive and less burdensome corporate tax regime.”
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