Another tax cut for firms but they’ll have to pay up quicker

BRITAIN was declared ‘open for business’ after its corporation tax rate was slashed yet again in a surprise boost for companies. Chancellor George Osborne announced he was cutting the tax for more than a million firms – making it among the lowest in the world.

Under the Coalition, rates for corporation tax – which companies pay on their profits – were cut several times from 28 per cent to 20 per cent in order to attract big businesses to invest in the UK.

But in a move branded ‘bold’ and ‘unexpected’, it will be cut again to 19 per cent in 2017 and 18 per cent in 2020. However, Mr Osborne also changed the way the biggest companies pay their tax, meaning they will have to pay up sooner.

The UK already had the joint lowest corporation tax rate of any country in the G20 – the world’s major economies – but Mr Osborne said the country could not be complacent. The tax rate is 40 per cent in the US, 33 per cent in France and Japan, and just under 30 per cent in Germany. Mr Osborne told MPs yesterday: ‘There are those in this House who say we were wrong to cut corporation tax in the last Parliament.

‘But it created millions more jobs, brought business back to Britain and created much-needed investment, so I profoundly disagree with them.

‘This country cannot afford to stand still while others rush ahead and I am not prepared to see that happen. ‘Today I am cutting it again. We are giving businesses the lower taxes they can rely on. We are sending the message out loud and clear around the world that Britain is open for business.’

Genevieve Moore, from chartered accountants Blick Rothenberg, said: ‘Big businesses will benefit from the reduction – let’s hope they invest it back in their employees and the UK.’

The sting in the tail is that the largest companies – those making more than £20million a year – will now have to pay corporation tax much earlier in their accounting year.

This will bring the way they pay tax in line with other major world economies – and will also give the Treasury a cash boost of a £7.5billion.

At present these companies pay their tax for the year in four equal instalments. Payments are due in the seventh, tenth, thirteenth and sixteenth months after the start of their accounting year, which can be decided by the corporation. Under the new rules, the money will be due in months three, six, nine and 12 – meaning that companies will pay the tax on their profits closer to when they actually earn them.

Although the change will not cost firms more, it means they will have to make a double payment after it is introduced in April 2017.

This will give the Treasury a £4.5billion cash injection in 2017-18 alone, as it effectively receives one-and-a- quarter payments from firms in that tax year.

The public coffers will then receive another £3billion in the 2018-19 tax year as the rest of the early payments trickle through. This will more than compensate for cutting corporation tax, which will cost the Treasury almost £6.6billion by 2020-21.

The reduced tax rate will be seen as an attempt to encourage international giants to pay their fair share of tax, rather than using loopholes to dodge their liabilities.

Companies such as Starbucks, Google, Apple and Amazon have been accused of shirking their tax responsibilities by using elaborate tax avoidance methods, depriving the UK of billions of pounds.