BDO Welcomes Commitment to cut Corporation Tax
Commenting on George Osborne’s speech at the CBI Annual Dinner last night (19 May 2010) Stephen Herring, Senior tax Partner, BDO LLP said: “We warmly welcome the Chancellor's commitment to cut the rate of corporation tax significantly; this should include an immediate cut to 25% with further reductions to 20% during the lifetime of this Parliament. Indeed, we have consistently argued that the single most important feature of the UK tax system for businesses is to have a competitive headline corporation tax rate; it is a shame that we had to fall behind the likes of Sweden, Denmark, Ireland and much of Central Europe in this respect.
“In the context of the horrendous fiscal deficit, it is entirely unsurprising that George Osborne will look to finance this corporation tax rate cut by targeting tax avoidance and restricting (although he uses the word “simplifying”) certain business tax reliefs. If this is to include reform of the capital allowances system, he appears to have been persuaded that sufficient incentives must remain for manufacturing industries.
“It is, however, disappointing that he did not explicitly commit the Government to reduce the small companies rate of corporation to below 20% to recognise the additional challenges faced by entrepreneurial business.
“The Chancellor will face a difficult balancing act so far as Controlled Foreign Companies ("CFCs") are concerned. To introduce much needed simplification to encourage global businesses to locate in the UK, whilst preventing these rules being abused to artificially reduce profits properly taxable in the UK.
Herring continued: “His solution to this tension will provide important clues to the Government's overarching fiscal strategy and approach to curtailing artificial tax avoidance.
“We trust that the Chancellor's first Budget (on 22nd June) will announce further reforms to business taxation which simplify taxation, promote employment and enhance the UK's competitive position in comparison to its European and other global competitors. We also strongly believe that the Chancellor should continue the initiative announced by HM Treasury in its Consultative Paper, "A Tax Framework for Business" published in March.
“The longest Budget speech in history? Hopefully next year the Chancellor will return to the tried and tested format for tax changes by announcing them in his Budget speech (along with HMRC's detailed commentary upon the proposed legislation) to the House rather than a “Budget Speech” lasting, in effect, from last night’s CBI Dinner on 19 May Budget until 22 June.”
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