15% corporation tax

George Osborne has floated the idea that the UK could reduce corporation tax to 15% or lower in an attempt to make the UK the place to do business. By making this surprise announcement at the beginning of the month, he will no doubt have in mind the many larger institutions that are reconsidering a move from London to other EU financial centres following Brexit.

 There are concerns that this could, if implemented, produce a race to the bottom, as other countries try to out-compete the UK rates.

 The present 20% corporation tax rate is already scheduled to reduce in the coming years. The present timetable of reductions is:

  • From 1 April 2017 reducing to 19%
  • From 1 April 2020 reducing to 17%

Of greater concern, certainly for smaller businesses, is maintaining profitability in the coming years as the UK adjusts to a new alignment with the EU and the rest of the world. Uncertainty is likely to be a constant companion at our board meetings until the post Brexit changes are completed.

 Businesses would be best advised to observe basic good housekeeping:

  • Tighten credit control,
  • Maintain liquidity,
  • Reconsider investment decisions that are unlikely to have an immediate, positive impact on profitability,
  • Rewrite budgets and make sure monthly financials are reviewed.

Anchoring larger, mostly financial institutions to UK residency in the hope of minimising any down-side losses to the UK economy, whilst laudable, does not necessarily help small business owners – if they are unable to make profits a reduction in tax rates at some future date is largely irrelevant.

 It will be interesting to see if George Osborne, or his successor, come up with Band-Aid policies for smaller business development in the coming months.

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