Tax cut plea likely to fall on deaf ears

The Treasury is faced with an unenviable task – keep businesses happy while also protecting the UK’s tax base.

Now senior figures in the FTSE 100 have called for the corporate tax rate to be dropped to 15%, but this would take a major leap of faith by the Treasury at a time when the UK’s coffers are creaking.

Looking at the numbers, GlaxoSmithKline CFO Julian Heslop’s description of corporate tax issues as “the tail wagging the dog” seems apt.

HMRC collected £397bn in 2009/2010, of which £134bn was generated from income tax, £94bn from national insurance contributions and £67bn from VAT. Corporate tax brought in just £33bn, adding weight to Heslop’s view.

Whether this is down to multinationals’ clever tax arrangements which keep cash away from the Exchequer is another issue – the gulf between corporation tax and the big three is clear.

A corporation tax rate of 15% would be ambitious to say the least. KPMG tax part­ner Tom Scott believes for such a low rate to work in the UK, the generous system of tax breaks would have to be reined to balance the corporation tax cut. “Other jurisdictions are seen as either imposing less tax on profits or having a better system of deductions,” he said. “You would probably have to have a very broad tax base with very few deductions.”

The Treasury is sticking to its mantra that the UK is “one of the most attractive places to do business” so multinationals may be waiting a long time before they get the cuts they want.

Further reading:

GSK CFO and Vodafone's Connors slam UK tax system