Election 2017: Corporate Tax

The Chancellor recently stated that he wanted the United Kingdom to be where businesses wanted to invest and it is certainly a draw with our corporate tax one of the lowest in Europe.

Unfortunately, both of the main parties are light on policy detail in this area, aside from Labour’s intention of raising corporate tax rates.

The Conservatives have again talked about simplifying the tax system. They have already empowered the Office of Tax Simplification to look at certain areas, but there is nothing in the manifesto to indicate that there will be wholescale reform of the tax system.  They also plan to reform business rates, including more regular but smaller increases.

Labour aims to ensure that 60% of UK energy comes from zero-carbon or renewables by 2030, and we can assume that this would be through the usual policy options of grant funding, and tax incentives for users or producers.

Corporation tax rates are a key difference. The Conservatives have already reduced the rate of corporation tax to 19%, and had announced some time ago that it will be reduced further to 17% from April 2020.  There is no change to their plan. Labour’s manifesto commits them to a 26% main rate, but reintroducing a lower rate for smaller companies which seems to be 21%.  As yet, we don’t know at what figure the lower rate would kick in but on the “old” two-rate system the full rate of corporation tax was paid on profits of £1.5m upwards.

Both parties have flagged the importance of Research and Development in the UK.  Corporate R&D is funded by both grants, and targeted tax relief.  Both Conservatives and Labour have flagged their commitment to having 2.4% of GDP investment in R&D, rising to 3% by 2030.  HMRC figures show that over 1,500 Yorkshire and Humberside companies made R&D relief claims in the 2014/15 tax year for instance, and the 2017 Budget confirmed that the Treasury was satisfied that existing R&D relief scheme for companies was working well and is here to stay.

With Brexit looming the associated tax uncertainties are “where” to do business, and big questions over VAT and customs duties on European trade.  Those will remain questions which no party can answer until more is known about the direction of our exit negotiations.