Canada, as well as having a lower corporation Tax rate of 18% (now 16.5%) has the benefit of having only 50% of their capital gain taxed at the same rate of 18%, lower than the UK’s 28% on 100% of Capital gain. This consecutively shows that more profit would be retained for business’s looking to locate their. This is a disadvantage to the UK. Both Canada and USA do not charge VAT so costs for raw materials are relatively low, making them both a good place as an investment location.
Analysis of Charts
(Deloitte)
Looking at the Chart above it can be seen that the UK has few positive aspects compared to negative, in terms of attractiveness for a place to invest compared to other countries. The UK is and has been well known for its labour relations with other countries and is known worldwide for the wealth of skilled and talented employees which is an advantage for companies looking invest, however the positive features shown are not necessarily the most important factors which are considered by investors.
“It is essential to pursue careful consultation between HM Government and business taxpayers to see how we can move forward to a proportionate and responsive taxation regime that delivers the positive outcomes for the economy which we all seek”. (The impact of...2008).
As you can see the business tax levels have declined significantly over the last 10 years alongside the level or regulation and personal tax levels. All of these criteria are more important to investors and so UK is a less attractive place to invest when correlated with the positive aspects. The UK should keep good labour relations strong but build on and regulate the negative features to become more competitive, to allow greater economic growth and a sound location for investment.
(CBI 2006)
If the UK Tax regulation and government policies remain as they are there will be a decline in all the UK markets primary locations over the next 5 years as shown on the charts above, especially in the design(-10%), marketing and brand development (-15) and service provision (-10). This will mean that market share will decrease for various industry areas, economic activity will decrease, more people will lose jobs and less people and organisations will be attracted to invest in to declining markets.
“Rates of corporate tax are less than 10% in Singapore, Ireland and Belgium. The UK at
24%, or what is proposed, isn’t competitive”(Deloitte 2010).
The UK regulations need to ensure there is an incentive to access their markets and allow opportunities for organisations to grow by expanding the existing markets using incentives of business grants, tax reductions and treaties and reducing tax on costs such as VAT. If this does not happen investors will look in to locating their headquarters to other competitive countries where locating would be more beneficial, notably areas such as marketing and development (-9%) and service provision (-10%). On the positive side companies investing capital in UK for production assembly (+9%) and it and admin support (+4%) are set to increase over the next 5 years.
Conclusion
To conclude my findings shows the UK Tax rate is too high at 50%, the highest, which is not competitive enough against other countries. Global investors are looking for a location where high profits can be achieved at low costs, which will be beneficial for their business to thrive in and where business needs are addressed. This is a huge factor for the UK governments and tax authorities to take in to considerations as it is driving away the motivation for both small and large organisations to invest in the UK as their income would be taxed significantly more than in other areas such as Ireland or America where the tax rates are considerably lower. One of the main reasons a company is looking to invest capital in a new location is to achieve the greatest return on their investment at the lowest costs. The high VAT rate in the UK means costs will be high.
Looking at the income tax of individuals in the UK it can also be seen that though there are some advantages, the high level of Tax means attracting staff for existing business will be very difficult in the future. Some countries taxation policies also prevent double taxation by having treaties in place which would attract organisations which are looking to operate in more than one country. This is a competitive advantage against the UK for investors. It could in the future drive current UK incorporated companies to set up their primary business’s elsewhere as there are more benefits in terms of profits to be made as well as aspects such as government grants given, and more tax deductions given for business tax and personal Tax. This would have a negative impact on the UK’s economy.
“Independent research commissioned from CRA International by the City
Of London concludes that the UK corporate and personal tax regimes, and the manner of their implementation, are impacting detrimentally on the
Competitiveness of the UK economy and are beginning to affect
Business location decisions” (The impact of...2008)
There has been a trend in the UK where Tax seems to be getting higher and higher and it seems as though the government support and try to encourage this. So for potential investors this would be a growing concern. If they settle in the UK will the Tax levels keep rising? This is an uncertain answer but looking at the past trends it does not look like an incentive.
The United Kingdom is deemed to have sustainable corporate tax systems but it needs to be more then to simply raise revenue, it also needs to be able to allow businesses to thrive. It should be a place Where companies administration and compliance costs are low to allow long term decisions about growth to be feasible and to be competitive enough for them to operate against international markets. Tax Competition is highly important as are the the use of tax rate reductions/exemptions applied by governments across the globe to encourage local capital formation. UK businesses need to have a competitive advantage to other developed countries.
“There is a need for government to pay careful attention to the tone, application and long-term impact of any new taxation legislation that they wish to introduce”.
Future Recommendations.
Future recommendations to increase the attractiveness to invest capital in the UK against other competitive jurisdictions would be to produce various incentives such as, governments to issues grants given to business’s or certain business industries such as Design, Marketing and development and service provision, as they are more likely to be used as primary headquarters in other countries over the next five years (looking at the charts used). Doing this may negatively impact the UK economy in the short term as cost would be induced, but it would increase business activities and create more jobs and skills to improve the economy in the long term. Business Tax rates could be reduces to be more competitive against other appealing locations or Deductions on business tax for new established business’s could be reduced competitively for the start up year(s) of the business. This again Might not be economically beneficial in the short term but the economic stability of UK markets will increase allowing room for employment and greater market share and investment opportunities. The VAT has just gone up in the UK to 20%, where in countries such as America and Canada they have no VAT and in Ireland it is significantly less. VAT on certain products and services such as food and raw materials for specific industries ( the ones we are not doing so well in or not looking to do well in the future) could be removed. This is the system which Ireland has in place and they have a growing economy. These steps can only occur if the government coalition and the tax authorities work together to achieve positive outcomes to benefit the UK economy now and in the future as an attractive place for business’s to invest their capital.
Other issues to be considered:
- Need to access and diversify in to new markets.
- Skills, quality of life, political and economic stability, infrastructure.
- Personal taxation, regulation, business taxation, grants, loans, planning restrictions etc.
- UK taxation as the underlying issue for multi-national organisations looking to invest in other jurisdictions.
Bibliography
Deloitte. (2010). CBI Annual conference survey 2010 UK as a place to invest. Available: https://blackboard.canterbury.ac.uk/@@64a5f87143797ef6ec5fa4ec2c34b7cb/courses/1/BM09TAXATION/content/_600409_1/CBI-Deloitte%20UK%20as%20a%20place%20to%20invest%20survey%20-%20Ipsos%20MORI%20report[1]. Last accessed 10th jan 2011.
European Commission. (2008). Your Europe. Available: http://ec.europa.eu/youreurope/business/managing-business/paying-taxes/index_en.htm. Last accessed 10th jan 2011.
McAfferty, I et al. (2008). UK Business Tax a compelling case for change. Available:
Roland Rathelot and Patrick Sillard. (2008). THE IMPORTANCE OF LOCAL CORPORATE TAXES IN BUSINESS LOCATION DECISIONS: EVIDENCE FROM FRENCH MICRO DATA. .. 118 (.), 449 -548.
Snyder,Michael. (2010). The Impact of Taxation on Financial Services Business Location Decisions. The Impact of Taxation on Financial Services Business Location Decisions. . (.), 2 –
.. (2007). Financial advice. Available: http://www.financialadvice.co.uk/search/node/capital%20investments%20in%20uk. Last accessed 08th Jan 2011.
.. (2007). COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE . Available: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0785:FIN:en:PDF. Last accessed 10th jan 2011. .
(.). WORLD WIDE TAX. Available: http://www.worldwide-tax.com/. Last accessed 18th Jan 2011.
Appendix A
Here are some of the U.K personal annual tax rates for 2010 – 2011 ().
U.K. Personal annual tax rates 2010-2011
VAT – 17.5 – 20%
*Notes:
- The 10% on income tax relates to savings income of up to £2440.
- Dividends < £37,400 = 10% tax, £37,400 – 150,000 = 32.5%, > $150,000 = 42.5%
Ireland Personal annual tax rates 2010-2011
VAT – standard – 21.5%, other Reduced VAT’S – 4.8%, 5.4% and 13.5%
- Imports in to Ireland, assets and services are charged with VAT.
- The minimum turnover for registering with VAT services is EUR 37500 for services and EUR 70,000 for goods.
- VAT returns are made once every 2 months or sometimes once a year.
- Products and services exempt from VAT are: export, health and medical services, agricultural fertilizer, food, insurance and banking services.
USA Personal annual tax rates 2010-2011
Canada Personal annual tax rates 2010-2011
Appendix B
