Corporation Tax becoming a burning election issue

Low Corporation Tax is unfair to small business

Ever fumed with rage about the low rates of Corporation Tax paid quite legally by multinational companies? This sponsored post by Baker Tilly examines the current situation:

We can all hear the growing political row over Corporation Tax and this is likely to intensify right up to the next general election unless the government can lance this particular boil by bringing in root and branch reform. The controversy is basically centred on two specific business taxes, Corporation Tax and Business Rates.

The government is badly exposed because the current corporate tax regime is perceived to be totally unfair on the “little guy”. With so many voters continuing to be squeezed by the disparity between rising living costs and restricted incomes, any suggestion that big business is not paying its fair share is meat and drink to the Opposition.

Bernie Ecclestone’s Formula One empire is the latest example of a major corporation with most of its commercial activity in the UK but a miniscule Corporation Tax bill. Using a complicated mechanism involving inter-company loan interest agreed with HM Revenue & Customs, the group managed to reduce its 2011 CT bill to only £ 945,663 on profits of £305 million which is an actual tax rate of well under 1%.

This latest example follows hard on the heels of similar cases involving big global names such as Amazon, Vodafone, Google and Starbucks. The nub of the problem is that all these international companies can exploit legal loopholes which can reduce their UK corporate tax bills to nil or negligible amounts and the government is powerless to do anything about it.

The solution is to completely overhaul Corporation Tax or even to replace it altogether with something that reflects the country where revenues, rather than profits, are earned. The problem is that companies will already claim that they pay this already via VAT.

The other big area that the government needs to address is Business Rates which are an increasing bone of contention with UK enterprises both large and small. They complain that the level of rates bears absolutely no relation to profitability especially on the High Street where sales have been under pressure. They also discriminate between commercial retailers who have physical shops on the one hand and charity shops and online retailers on the other. The former pay full business rates while the latter pay little or none.

Mr. Miliband has already vowed that an incoming Labour government would immediately start to reverse George Osborne’s Corporation Tax cuts for large companies and use the proceeds to alleviate Business Rates for smaller concerns. In other words, he is deliberately siding with the little guy and taking on the corporate giants and making policy to fit with this requirement. Some may think this is knee-jerk pragmatism that threatens to totally miss the point when it comes to genuine reform of corporate taxation in the UK.