Corporation tax: stability welcome, but pace of costly changes still poses risks

The Chartered Institute of Taxation (CIOT) has welcomed the Chancellor’s confirmation that he will stick with the plans he inherited for corporation tax. But some of the adverse changes still create unexpected costs for business, and the pace adds to the risks of business uncertainty at the current time.

In George Osborne’s Spring Budget, he announced a cut in corporation tax to 17% from 2020-21 and costing £945m in that year, the last of the forecast period at the time.

This was offset by a raft of other changes, including restricting some larger companies’ interest deductions, and changes to loss relief rules, raising well over £1bn per annum throughout the forecast period. These changes have now been reaffirmed.

Glyn Fullelove, Chair of CIOT’s Technical Committee, commented:

“We welcome the fact that the Chancellor has resisted the temptation to add new changes of his own to those already announced. Business needs as much stability as possible, particularly at the current time.

“We understand the logic of the revenue-raising measures. But some of them will reduce the rate of return on investments that were made assuming tax reliefs would be available, which may, in turn, slow future investment. We remain of the view, expressed in earlier consultations, that the haste with which these aspects of the changes are being pursued, detracts from the Chancellor’s efforts to reduce uncertainty.”

Both the 19% corporate tax rate applying from April 2017 and the 17% rate by 2020 will be very competitive internationally. They will be similar to or lower than the equivalent tax burden in the US, even if Donald Trump’s announced tax proposals are enacted in full.

In the US, almost all the individual States impose a tax on corporate profits, over and above the Federal rate. If the Federal rate, currently 35%, is reduced to 15% as the President-elect has proposed, the combined Federal and State tax burden will still be of the order of 20% for most large US companies.

Notes for editors

1.       The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,600 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)