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UK CORPORATION TAX – WHAT’S THE FUTURE?
On 8th July the UK Chancellor announced that corporation tax will be cut from a rate of 20% down to 18% by 2020. The change follows the recent trend of lowering the rate, since 2008 the rate has fallen by a third from 30% to 20%. By 2020 the UK will have a similar level to Hong Kong and Singapore, two countries which the UK had previously regarded as low tax jurisdictions. This further reduction in corporation tax rate is predicted to cost the Exchequer £7 billion over the life of this Parliament. The Chancellor said, “We are giving businesses the lower tax they can count on to grow with confidence, invest with confidence, creates jobs with confidence”.It is important to note that the tax rate is just one element of corporation tax and to fully measure the level of tax one must look at the level of profit that is subject to tax (the tax base). Whilst the UK has one of the lowest rates of corporation tax in the G20, it is comparatively uncompetitive when it comes to marginal rates of corporate tax, such as plant and machinery allowances and capital expenditure relief. Further, the Chancellor has brought in measures to accelerate the payment of corporation tax for the most profitable companies, which is estimated to raise £8 billion over the life of the current Parliament.Although the changes appear to be weighted in the favour of the Exchequer overall, the message is still abundantly clear from the government, and as the Chancellor stated, “Britain is open for business”.