‘Slash the tax’

Finance chiefs at two of the UK’s most powerful companies have called for
corporation tax to be slashed to 15% in what would represent one of the most
sweeping changes to the UK tax system since VAT was introduced 30 years ago.

As more and more business giants turn their backs on the UK or threaten to
move offshore, Julian Heslop, chief financial officer of GlaxoSmithKline, and
John Connors, tax strategy director at Vodafone, laid down the gauntlet to the
Treasury and pushed for the tax to be almost halved. They believe this would
give the UK a dual boost, stemming the flow of companies leaving the UK while
also attracting overseas investment.

Heslop said other countries were looking to capitalise on corporate
unhappiness by luring them away with more attractive tax regimes. “The world is
not standing still…. move corporation tax down to 15%,” he said. “The money we
would lose in corporation tax we would more than make up in employment taxes.”

Representatives from the Treasury countered that the UK’s tax system was
broadly in line with G7 countries, but Connors said that the UK had to go
further to reap the rewards when the economy was booming again. “To be broadly
competitive with the G7 countries is just not good enough, looking at other low
tax jurisdictions,” said Connors. “There’s a window of opportunity in an
economic recession to attract jobs and investment.”

Speaking at a high-profile Oxford University meeting discussing controlled
foreign companies, Heslop described the way that corporate tax had such an
influence on overall UK tax policy as “the tail wagging the dog” because
employment taxes – NIC and income tax receipts – dwarfed levies on company
profits. HMRC figures showed £33bn in corporation tax receipts during 2009/10
compared to a collective £228bn from National Insurance and Income Tax. Heslop
did concede the UK tax base would have to be broadened by reining in the amount
of tax deductions businesses would be able to claim, for instance restricting
the deductibility of interest on borrowings.

Tax advisers and opposition political parties stopped short of backing such a
drastic change but approved of sizeable tax cuts that would make businesses,
both onshore and offshore, take notice.

Tom Scott, tax partner at KPMG, said: “It’s an extreme extension of what many
are saying, which is to progressively reduce corporation tax to 20%. I think
it’s hard to see more modest proposals keeping companies onshore and also
bringing them here from overseas.”

John Thurso, Liberal Democrat shadow business secretary, said corporation tax
cuts had to be weighed up against the state of public coffers. “The long-term
competitiveness of our tax system is essential to attract and retain businesses
in the UK but further reductions in corporation tax need to be balanced against
the need to reduce the public deficit.”

Over the last decade the UK has become progressively less competitive, and
its tax system has become the most complex in the world, according to Tory
detractors. The Conservatives told Accountancy Age that the party would cut the
headline rate of corporation tax to 25p “or lower”, slash the small companies’
rate to 20p and also publish a blueprint for reform if they came to power. “In
our first Budget we will set out a five year road map for the direction of
corporate tax reform, providing greater certainty and stability to businesses.”
a spokesman said.

The Treasury responded: “The UK is one of the most attractive places to do
business and continues to have the lowest corporation tax rate of the major G7
economies, this is alongside an internationally competitive small companies rate
of 21%.”

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