The UK decision to increase its corporation tax rate to 25% from 19% for companies with profits above £250,000 has meant it has dropped 15 places in the firm’s tax league table study, according to a study of 33 countries by accountancy firm UHY Hacker Young.
The only countries ahead of the UK were Ireland with a rate of 12.5% Romania with a rate of 16%, Belarus with 18%, Croatia with 18%, and Poland which also had a rate of 19%.
From 2023, the study showed that the UK will have a corporation tax rate that is three percentage points higher than the European average of 22.6%. However, the rate will now be in line with the G7 average which is 25.7%, and the global average of 25.1%.
UHY Hacker Young highlighted that even though the UK is still just below the global average, many international companies that previously saw the UK as an attractive place to do business could ‘now question whether there are better opportunities and more favourable tax rates on the EU continent’.
Andrew Snowdon, head of tax at UHY Hacker Young said: ‘For years the UK has been known as an established locale for international business, and these upcoming tax hikes may lead investors to question the UK as a place to set up shop.
‘The government is undertaking a fine balancing act between keeping the UK attractive for business owners large and small, as well as remaining competitive in the global arena. Companies are still feeling the sting of the last two years, therefore a sensible corporate tax policy is crucial to maintain confidence in the UK economy.
‘While the UK has spearheaded one of the most dramatic corporate tax increases globally, many countries are likely to follow suit now the competition for rock bottom tax rates appears to have ended.’
This concern is also highlighted in a survey by the Centre for Policy Studies (CPS) on investment which interviewed over 100 business leaders and entrepreneurs, and found that the UK's international standing was slipping because of red tape, rising taxes, and ministerial complacency.
The investors were asked ‘why choose Britain’, the CPS stated that the answer not only highlighted the worries about the UK’s trajectory, but also found that many were concerned that the government was not as focused on the problem of investment as it should be.
Respondents also believed that the UK government has yet to put forward the policies, or produce a narrative, that makes an irresistible case for the UK as a place to do business.
It also highlighted that the planned increase in corporation tax, as well as national insurance rise, and super-deduction withdrawal will harm the UK’s international tax competitiveness.
The CPS concluded its report with a 10-point plan which was developed from the investment survey to make the UK ‘dramatically more investment-friendly and business-friendly’.
Some of the steps included in the plan were to cancel the corporation tax rise in April 2023, extend the special tax regimes that bring wealth and talent to the UK, enhance tax breaks that boost investment, and introduce cutting-edge regulatory frameworks to capture new markets.
Robert Colvile, director of the Centre for Policy Studies, said: ‘When business speaks, the government should listen. We know that business is the engine of economic growth. If we are to grow our way out of the current economic malaise, we will need business to do the heavy lifting.
‘Making Britain more attractive to investors will also help make Britain a more business-friendly country – which is the only sustainable route to prosperity. We urge the government to listen to the voices in our report.’
