Springfords LLP blog

Some news, views and comments about everything and anything, relevant and irreverent.

Corporation tax or your profits up in smoke?

30 September 2014

The referendum may have returned a rebuff on independence, but it has opened a whole multiple choice on the future business tax regime in Scotland and the UK at large.

It’s been widely reported that cutting Corporation Tax (CT) was top of the independence agenda set by out-going First Minister Alex Salmond.  If that had made doing business in Scotland relatively cheaper, then the expected bonus would be to attract businesses to locate in Scotland - in much the same way that Ireland has proved attractive to overseas enterprises as a head office location.

With the ballot boxes back in wherever ballot boxes live when they’re not being stuffed with ballot papers, the Corporation Tax matter has moved on to the UK agenda with some urgency.  Wherever your business is located, if you don’t pay attention to your own CT position, you could find your profits devolving to one or other Treasury, and your own budget plans going up in smoke.

Already there is some criticism of the Westminster Government's position on Corporation Tax.  After all, the Government is still intent on decreasing CT (rates are due to fall to 20% next year for large companies too) as a central part of its self-proclaimed economic strategy. .  Some say that the policy of keeping CT low is actually costing the economy without attracting new business.  Rather than bringing in new businesses, it’s felt that the tax regime is merely encouraging existing ones to bank profits on lower costs. (It should although be noted that at the party’s conference in Manchester recently, Ed Miliband reiterated Labour’s pledge to reverse the cut, if it forms the next Government after the general election in 2015.)

Some commentators, including Tony Dolphin, director at the Institute for Public Policy Research who was quoted in the Express, believe that CT will be on the “devo max” list of Scotland’s tax raising powers.  Whether that attracts business to Scotland or stokes the engines of industry already in Scotland is open to debate.  As we’ve discussed before, avoiding onerous corporate tax rates in their own country has been a major driver in encouraging foreign business to relocate to the UK - most notably US firms, in the so-called tax inversion strategy. 

It’s worth remembering that tax rates are designed first and foremost to balance the books at the Treasury.  Any benefit for business or individuals is probably a side effect.  Don’t imagine that the Chancellor is looking too closely at your profit and loss account before making a decision on where to fix rates.

If Corporation Tax rates are reduced, it would be tempting to consider it a windfall for your business.  At Springfords, we take a longer term view.  Tax rates, like everything else, can go down as well as up.  Whichever “Parliament” has the responsibility for future Corporation Tax rate setting, be sure to set your own agenda to deal with it appropriately.  If you’re unsure about your own strategy, or just want some reassurance, speak to our corporate tax team..

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Some news, views and comments about everything and anything, relevant and irreverent.

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