It seems that just about the whole world and his dog is going to have something to say about corporation tax and whether it is the best way to get companies, particularly multinationals, to contribute their fair share of government tax revenues. Right now, we have everyone from the House of Lords Economic Affairs Committee to the Organisation for Economic Co-operation and Development (OECD) all looking at ways of taxing the likes of Google and Starbucks who can apparently shift profits from one country to the next until they find the lowest rate of corporate tax.
However, while they are busy deliberating about how they can close loopholes or invent new business taxes which provide more fool proof ways of skimming off revenues for the government, the UK’s ruling coalition is aggressively pursuing its own agenda of reducing corporate tax rates to such a low level that companies are hopefully not going to be too bothered about tax avoidance with all the adverse publicity that goes with it.
This is all part of a multi-year programme pledged by the Conservative Party and put into motion with its coalition partners. After years of socialist rule, the new government wanted to demonstrate that Britain was once again open for business. To this effect, the headline rate of corporation tax has already been reduced from 24% to 23% with effect from 1st April 2013 (with further reductions to 21% and 20% scheduled from 1st April 2014 and 1st April 2015 respectively).
Measures such as these were originally designed to make the UK business tax regime the most competitive of any within the G20 group of developed nations so that foreign companies would be attracted to commence operations here and companies already based here would stay rather than move to other countries with lower tax rates. At the time, the issue of corporate tax avoidance hadn’t raised its head so the timing has proved fortuitous to say the least.
The good news for UK based companies and those thinking about coming here doesn’t end with the headline rate of corporation tax. Liabilities can be further trimmed legitimately through the use of new allowances such as the above the line (ATL) research and development tax credit worth up to 10% of qualifying R & D expenditure. Furthermore, since 1st April 2013, companies have been able to pay a reduced 15.2% rate of corporation tax on profits earned from the exploitation of patents registered in the UK or the EU. This rate will reduce further over the next 5 years in increments designed to arrive at a rate of only 10% by April 2017.