Corporation Tax down to 15%…

It’s a game of chess where we can’t see the board let alone all the pieces!

One of the first post-Brexit tax changes was announced yesterday. The corporation tax rate is coming down to 15%.

Let’s not be blinkered here, this is a clear attempt to keep big companies in the UK...

Some are already saying that it is wrong that big businesses would be paying even less tax whereas surely we need more not less tax in the coffers.

But think about it for a minute.

We are now set for a period of uncertainty where we possibly have even less control than we had before because new trade agreements will have to be negotiated, and yes we might end up with a better deal than we had before. But think about it from the point of view of the directors of the big businesses. Planning and investment is made for many years in advance and now the UK might not be the preferred route into the European Market in which case they might need to look for alternative places to trade and where will that leave us. What if the car plant in Sunderland decides to move manufacturing to Spain, or France? Think what effect that would have on unemployment in the area.

So, to try and shore up and keep the UK an attractive place to trade, new lower rates of corporation tax are being offered.

I’ve seen it mentioned in some press that the UK is in danger of turning into a tax haven and I don’t think that’s a bad thing. I’m not a politician, I don’t pretend to understand all the issues at stake and frankly at the moment I’m not absolutely sure if looking back in ten years time we might think leaving Europe was the best or worst thing we’ve ever done but if reducing the CT rate down to 15% brings a bit of comfort to business then that might help secure continued and maybe even attract new investment in the UK, jobs to the UK, help us grow our research and skills and actually bring more tax revenue to the UK and surely that’s a good thing.

Ignoring big businesses for the time being, how will the reduction in corporation tax affect the vast majority of companies in the UK, the everyday family companies? Well I’ve done a few what-if calculations (sorry “computations” – we are talking tax now) and keeping all things the same then its quite obvious that we will benefit from the lower tax rate.

Remember, until April this year there was a distinct tax advantage in trading as a limited company as opposed to a partnership or even sole-trader because of the preferential dividend tax rates. That tax advantage was removed in April and so from a tax point of view incorporation wasn’t as attractive as it was before. It looks like the reduction in corporation tax might make trading as a company attractive from a tax point of view again.

But, and it is a big but, who knows what is going to change between now and the 15% tax rate coming in. The incentive used to be how company dividends were taxed in the hands of the business owner, and I really wouldn’t be surprised if that personal taxation side was tweaked again. Perhaps the tweaking will happen at the same time as the corporation tax rates come down meaning that while HMRC might be collecting less tax from the company, that shortfall is then met by taking more tax from the people taking the profits from the business!

Bottom line, it feels like we’re watching a big chess game where we can’t see the board let alone all the pieces. We’re having to guess where the other pieces are, what the next moves are going to be and set our pieces accordingly.

Robin Stevenson