The Prime Minister’s speech at the CBI this week has shed further light on what we can expect from tomorrow’s Autumn Statement.
Commenting on the implications of the speech, George Bull, Senior Tax Partner at RSM said:
‘From the tax perspective, three key points emerge from the Prime Minister’s speech.
‘First, Theresa May has restated a commitment that the UK should maintain the lowest corporate tax rate in the G20. The rate, which is currently 20 percent, is set to fall to 19 percent from April 2017 and then 17 percent from April 2020 under already-enacted legislation. In the aftermath of the referendum, the then Chancellor of the Exchequer George Osborne said that the UK’s corporation tax rate might need to fall even further, to a rate of 15 percent, to encourage investment into a post-Brexit UK.
‘After Philip Hammond became Chancellor of the Exchequer, early signs from Treasury officials were that plans to reduce the corporation tax rate to 15 percent might quietly be shelved. With US president elect Donald Trump now planning to reduce the US main rate of business tax to 15 percent, the implication of the Prime Minister's commitment is that we might see a UK corporation tax rate as low as 14 percent in the medium term. That would be an astonishing position for the UK to adopt, and would inevitably lead to criticisms from other countries that the UK is consciously seeking to become a tax haven in what is beginning to look like a race to the bottom.
‘Second, the prime minister has promised to give more support to innovative firms through the tax system. While enhanced tax reliefs for research and development are to be welcomed as a necessary part of maintaining the UK's leading-edge position in innovation, that does not address the primary problem identified by Mrs May, namely that all too often great ideas developed in the UK end up being commercialised elsewhere.
‘This leads to the third point, a commitment to encourage long-term, patient investment in innovative businesses so that intellectual property developed in the UK can be commercialised here. We will have to wait for more details until Philip Hammond delivers his Autumn Statement on Wednesday 23rd November. However, as all of the prime minister's comments were intended to address the position of the UK outside the EU, it is entirely possible that the government is prepared to use the UK tax system in a way which would previously have fallen foul of EU State Aid rules.
‘In our Autumn Statement predictions, we observed that tax might play a very important part in the Chancellor's proposals. That is now beginning to look like an absolute certainty.'