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Magic Money Trees & Rates of Corporation Tax

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

The election debate is heating up and all of the parties seem to have discovered magic money trees, even the conservatives.

It is now becoming clear that rather than having discovered magic seeds from which to grow the money tree, the money will, in part, come from increases in taxation both personal and corporate.

On Tuesday morning (ahead of the live debate between Boris and Jeremy which seems to have been called by most pundits as a draw) Boris announced that the planned reduction in corporation tax from the current 19% to the planned 17% in April 2020 would be postponed. This reduction had been announced in 2016 and was the final leg in an overall reduction in the rate of corporation tax from (a maximum) of 28% in 2010. This was all part of the overall policy of making the UK an attractive place to do business. By comparison Labour has announced that they will increase corporation tax to 26%.

The headline rate of corporation tax is just one element of a company’s overall tax burden and in addition account needs to be taken of tax relief for investment – capital allowances. In the UK we have a complicated regime for capital allowances which has been used as a political/ economic policy tool, but overall provides an attractive regime for capital investment. Added to this we have an attractive regime to provide enhanced tax relief for Research and Development expenditure and of course the Patent Box tax relief regime.

Other European countries have similar reliefs but overall the UK is ahead of the pack.

Even at 19% the UK’s rate of corporation tax is attractive. The average over the EU is 22.5%, the range, however, is from 9% in Hungary to 31% in France ( with other large economies at a similar level e.g. Germany 30% and Belgium 29%). Even the headline rate of 12.5% in Ireland is deceptive as there is a 25% rate on non-trading income.

Tax policy has always been a political weapon, the sad thing is that most politicians do not seem to understand how the system works or the wider economic issues or perhaps of greater concern their advisers do not! One of the threats made to the EU as part of the Brexit discussions was to make the UK an offshore tax haven by reducing further the rate of corporation tax below the planned 17%, this seems to have been quietly shelved!

For more info on the topics raised, please contact a member of our helpful tax advice team. You can also read more about Politics, capital allowances and tax matters below…

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