Following yesterday’s UK budget, the corporate tax rate has been cut 1% to 20% and down from 28% in 2010. Even though it has been reduced by 8% over the past three years, it is still well above Ireland’s rate of 12.5%.
Commenting on the move, tax partner at Ernst & Young, Michael Hall said: “By confirming that the UK and Northern Ireland’s corporate tax rate will drop to 20%, the chancellor has delivered the ambition he set out in the last budget. The UK’s tax regime is already attracting more jobs and investment, and this latest step reinforces the message that Britain is open for business.
“Clients have been telling us that the UK’s tax regime is an asset, but 67% of the tax professionals we surveyed prior to the budget said that uncertainty created by the fair tax debate is a deterrent to increasing the level of their activities here. The chancellor’s budget speech will hopefully have helped to address some of these concerns.”
The revelation that many multinational companies such as Starbucks and Google have been paying minimal levels of corporate tax by shifting their profits to lower tax jurisdictions, prompted a political and public backlash.
The shift on the corporate tax rate means that Britain is looking to attract more levels of foreign direct investment.
But Mr Osborne introduced a number of other measures that will also make the country more attractive to foreign direct investment. There are a number of incentives including reliefs on patents in an effort to develop the knowledge economy.
Robert Heron, also at Ernst & Young explains: “Bringing innovation to the boardroom, for the first time companies looking to patent product or process will now need to think about the cash savings of doing so.
“Setting aside the debate on a separate rate of corporation tax for Northern Ireland, we will have a 10% rate (patent box) tax from Apr 1.
“With the R&D tax reliefs and the introduction of patent box regime those companies involved in innovation are at the heart of the government’s growth agenda.”