'Myth' of high UK corporate tax rate

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The UK has the lowest business tax burdens of any major European economy, according to research by accountants UHY Hacker Young. This inconvenient fact is rather at odds with the constant chorus of demands to 'cut the corporate tax burden'.
Roy Maugham, tax partner at UHY Hacker Young, said: "The reality is that the UK is a considerably more welcoming business environment than most other major economies." And he added that the perception of the UK as a high tax economy for business was "a myth".

The firm's research looked at the tax paid by businesses with pre-tax profits of $100,000, $1m and $100m. Out of 21 countries, the UK had the 16th highest tax burden for $100,000 profit, the 14th for $1m and the 12th for $100m. The UK has the second lowest corporate tax burdens in the G8 group of nations.

Lowest tax
The research also found that the UK tax burden is the lowest among the major European economies. Only Estonia, Romania, Ireland and the Netherlands impose lower rates of corporate tax. Chancellor George Osborne has already announced plans to cut this low rate even more, from 26% to 23%, by 2014.

But for some in the business lobby, this is not enough. Yesterday the Institute of Directors launched a 15-point plan grandly entitled The Route Back to Growth. In it, the IoD called for the corporate tax rate to be cut even further, to 15% by 2020.

The group also wants the 50% income tax rate for the highest earners to be scrapped, "to kill the perception that the UK is a high-tax country". Could that perception be anything to do with self-interested groups presenting an inaccurate picture?

Small business
If corporation tax was cut to 15%, this would not help small businesses which struggle to make the £300,000 at which the small profits rate can currently be claimed. So it cannot be seen as anything but a move to keep big business happy. But it's not tax that's preventing big business investing.

The UHY Hacker Young research explodes the myth of a high-tax environment anyway. It's economic uncertainty that is preventing big business from investing. So cutting corporate tax to 15% will simply lead to firms piling up more cash reserves as they continue to 'wait and see'.

The 50p tax rate is something of a political fetish in some quarters, and there's little hard evidence that it is putting off entrepreneurs as the IoD insists. Entrepreneurs get tax relief already on the first £1m of gains from selling a business, and after that tax is paid at the capital gains rate of 28% rather than the 40p top rate of income tax the IoD wants to see introduced.

Whose growth?
Don't expect any of these facts to quieten the chorus of demands for more tax cuts for business, or the uncritical amplification of those demands by media organisations which should know better. When the IoD says it wants 'growth', it's best to ask 'for whom?'

As we've reported elsewhere on our site today, tax evasion and offshoring continue to bleed money out of the global economy and into the pockets of the few. Meanwhile, those same interests demand yet more tax cuts. That can only add up one way.
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