The UK government announced yesterday that the main rate of UK corporation tax will be cut to 18% by 2020. It is currently 20% for the 2015 financial year which is the joint-lowest rate in the G20 group of countries. It will be reduced to 19% for the financial years 2017, 2018 and 2019 and then to 18% for 2020.
This is a further policy move by the UK government that reinforces the pledge it has made in recent years to make the UK the most competitive corporate tax regime in the G20. In the last five years the corporate tax rate has been reduced from 28% and incentives such as the patent box scheme introduced. Whether a further corporate tax rate cut will be greeted with enthusiasm by other G20 countries is doubtful, given previous concerns about the UK becoming a 'low tax' jurisdiction.
Chancellor of the Exchequer, George Osborne, was giving the first budget speech since the May
2015 general election and the first by a majority Conservative government in nearly 20 years. At the same time as announcing the cut in the corporate tax rate he emphasised the government’s record on tackling evasion, avoidance and aggressive tax avoidance, which is presumably a reference to the UK’s role in initiatives such as: driving the BEPs project; and the introduction of the Diverted Profits Tax. He also pledged to raise £5billion by targeting “tax evasion, avoidance, planning and imbalances in the tax system”.
So what does this all mean for business? The UK is clearly seeking to continue pursuing a policy of a low corporate tax rate to attract inward investment, yet at the same time reaffirming a commitment to tackle aggressive tax behaviours. Following the recent election of the Conservative government it would seem that this policy agenda is unlikely to change for the foreseeable future. This certainty should be welcome news to business.
For further information please contact Baker Tilly’s specialist International Taxation team.