By cutting corporation tax the Chancellor has given his backing for businesses to trade the country into growth – and Midland bosses say he has made the right decision.
The Chancellor announced an immediate one per cent cut in corporation tax – to 24 per cent – after saying he wanted to make the UK’s tax system more competitive for business than in any major economy across the world.
George Osborne told the Commons that the headline rate of corporate tax was the most visible sign of how competitive the UK was.
Chris Romans, tax partner at PwC in the Midlands, said the move was welcome – although not enough has been done to boost employment.
He said: “Trimming the headline rate of corporation tax down to 24 per cent sends a positive message to regional firms and will allow them to keep more of their profits and increase their scope to channel it back into job creation and investment. However, it is disappointing that more wasn’t done to incentivise employment, which would have been a real boost for the regional economy.”
The coalition government has already cut the rate of corporation tax from 28 per cent to 26 per cent and it was due to fall again to 25 per cent in April.
However, the latest cut means the new tax rate of 24 per cent is implemented straight away.
Mr Osborne said: “From next month, Britain will have a corporation tax rate of just 24 per cent, and we will continue with the two further cuts planned next year and the year after.
“So that by 2014, Britain will have a 22 per cent rate of corporation tax. The biggest sustained reduction in business tax rates for a generation.
“A headline rate that is not just lower than our competitors, but dramatically lower – 18 per cent lower than the US, 16 per cent lower than Japan, 12 per cent below France and eight per cent below Germany.
“An advertisement for investment and jobs in Britain, and a rate that puts our country within sight of a 20 per cent rate of business tax that would align basic rate income tax, the small companies rate and the corporation tax rate.”
The Chancellor also announced a doubling of grants to help new start-up businesses recruit and retain staff, saying the tax reductions were aimed at winning business.
Business groups have been pressing the Government to use today’s Budget to speed up help for firms so they can create jobs to offset losses in the public sector.
Ann Bibby, tax partner at accountancy firm Mazars, said: “The original target announced by the coalition was to bring the corporation tax rate down from 28 per cent to 24 per cent in the term of this Parliament. But now we are seeing an immediate move to 24 per cent with 22 per cent as the target and this has got to be good news for business.”
She pointed out that the small companies rate of corporation tax remained at 20 per cent and said she felt there might now be an increased tendency by owner-manager directors to take dividends rather than bonuses.
David Hillan, tax partner at Grant Thornton in Birmingham, said: “The Chancellor’s announcement to reduce the main rate of corporation tax means we are looking at the lowest rate since it was introduced in 1965.
"This, in conjunction with the existing corporate tax incentives for holding companies already in place, really does make the UK the go-to country for international business seeking growth. It will also undoubtedly have a significant impact on international corporates’ investment strategies when considering international expansion.
“Under the new Controlled Foreign Companies rules, which should commence in 2013, offshore finance companies could benefit from a rate of just 5.5 per cent by 2014, which is an additional benefit from the tax rate announcement.”