Breaking finance and business news, tax information, jobs and more for finance directors and senior finance professionals.

Tax

Extreme tax avoidance

Written by Paul Williams

Wednesday, 24 September 2008

Report says 1 in 3 businesses considering abandoning UK over corporation tax.

As the UK economy continues to falter, more than 1 in 3 (38 per cent) financial decision makers from medium and large UK businesses have discussed moving operations off-shore in order to reduce corporation tax, a move which could pose a significant threat to the stability of the UK economy.

This is according to research published today by accountants and business advisers BDO Stoy Hayward.

Three quarters of UK businesses calling for change

The research, which is released today in conjunction with a BDO Stoy Hayward report on the alternatives to corporation tax, shows mounting dissatisfaction with corporation tax which could lead to larger UK businesses seeking more attractive options overseas.

Over a third (39 per cent) of financial decision makers in UK businesses surveyed think UK corporation tax is an inefficient system and should be replaced altogether, whilst three quarters believe the tax needs to be reformed in order to increase incentives to invest in the UK and maintain competitiveness in an increasingly challenging global economy.

UK corporation tax deemed costly and time consuming to UK business

The research also reveals that 37 per cent of business leaders think that time and cost burdens of Corporation Tax have increased over the last five years, showing a growing disillusionment in the business community over the complexity of current tax policy.

Re-thinking policy to improve in both these areas could see the Government viewed in a more favourable light and placate corporates who feel disillusioned and suffocated by existing complexity and who are considering overseas options.

Corporation Tax… the REIT way

One of the alternatives put forward for discussion in BDO Stoy Hayward’s report, ‘The long-term outlook for UK Corporation Tax: An argument for change’, is to replace the current model with a system similar to the REIT (Real Estate Investment Trust) based structure currently applied to most listed property investment companies.

Companies would be exempt from paying corporation tax and instead, shareholders would be taxed on dividends. Over one third of businesses think this would be preferable to the current mode and almost one in four believe that this would create less administrative burden than at present.

Stephen Herring, Tax Partner at BDO Stoy Hayward, comments:

“Our research clearly shows that UK business is unhappy with the effects and complexity of the current corporate tax system. Over one in four larger companies have discussed moving offshore to reduce the burden of corporation tax. We’ve seen announcements in the last few weeks from Regus and Henderson on this aspect, and are likely to see more in the coming months. In these challenging times, it is imperative for the Government to consider a more radical approach to the corporate tax system in order to retain and attract companies to the UK and protect the tax base.

“We are witnessing an ever-increasing appetite for change, and a desire to tear up the rule books, as business calls for a root and branch review of business taxation. The response to our alternative for a REIT basis system shows there are genuine options for the Government to consider.”

The Report, ‘The long-term outlook for UK Corporation Tax: An argument for change’, has been published in response to mounting dissatisfaction with business taxation, following the two per cent reduction in corporation tax announced by the Chancellor at last year’s Pre-Budget Report.

The paper analyses best practice from around the world to search for an alternative system.