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Thursday, February 2, 2023

George Osborne announces cut in UK’s corporation tax

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Tough-talking British Chancellor George Osborne has promised further cuts to corporation tax after he announced in today’s Budget a cut in the UK’s corporation tax from its current 20% rate to 17% from April 2020.

He said the move would help British firms as he moved to clamp down on multinationals in the UK that seek to avoid taxes through complex structures.

But the Chancellor said he would bear down on international firms who use excessive interest payments to reduce the tax they pay on their profits in the UK.

Mr Osborne said relief on interest payments will now be capped at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.

The Government also said it would introduce rules to prevent multinational companies avoid paying tax in any of the countries they do business in, a complex technique called hybrid mismatches.

It would also make sure offshore property developers are taxed on their UK profits.

The Treasury will also more closely tax outbound royalty payments – these are fees for using intellectual property like patents and copyrights – meaning multinationals will pay more tax in the UK.

Mr Osborne said this basket of measures will boost revenues raised from corporation tax by £9 billion by 2020.

The Chancellor said: “Britain is blazing a trail. Let the rest of the world catch up.”

Nilesh Shah, head of tax at chartered accountants Blick Rothenberg, said: “A further reduction in corporation tax rate to 17% closes the gap with Ireland to 4.5%, making the UK even more attractive for large international companies.”

Neal Todd, a partner at law firm Berwin Leighton Paisner, added: “Britain may be blazing a trail for other countries with the reduction of corporation tax to 17% by 2020.

“Yet this is being paid for by the crackdown in interest deductibility to 30% for large firms and the earning stripping restrictions on losses.

“Together, these will add a significant additional burden to the tax planning roadmap for major UK businesses.”

Corporation tax has fallen from 28% when the Conservative/Liberal Democrat coalition government came to power in 2010.

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