UK Business not calling for cuts to corporation tax

- Reducing the corporation tax rate beyond the 17% set for 2020 will have limited impact and risks alienating the public
- Businesses wary of industrial strategy for tax, with many believing there should be a level playing field for all

A study of businesses’ views on tax policy as the UK moves towards Brexit has emphasised that corporation tax is not the defining feature of tax policy and there is limited appetite for cutting the rate further.

PwC brought together a cross section of businesses – from start-ups to multinationals- to debate priorities for the tax system. The conclusions of this 17 strong Business Jury were tested with a larger sample of predominantly heads of tax and finance across a range of UK businesses.

The majority of businesses involved (71%) believe the corporation tax rate should either stay at 20% or not go below the 17% already scheduled for April 2020. While some participants support a much lower rate to attract inward investment, the consensus is that the current rate is sufficiently competitive and further reductions may give a misleading impression of business’ role in the tax system.

Kevin Nicholson, head of tax at PwC, said:

“The UK’s changing relationship with Europe provides an unparalleled opportunity to reshape the tax system.

“Businesses large and small recognise the benefits of a competitive corporation tax rate, but it’s not the be all and end all. There comes a point when rate cuts have diminishing impact and can send unhelpful messages about business’ contribution, even though corporation tax is just one of the taxes business bears. Businesses think there should more focus on the taxes that generate the most revenue such as national insurance contributions and VAT. ”

Using tax to support specific industries is also relatively unpopular. Six out of 10 respondents feel that tax shouldn’t be used in this way. A third of businesses however, feel there is room to use tax policy to incentivise small and medium size enterprises, while a further third believe there should instead be a level playing field for all.

Kevin Nicholson continued:

“Tax is an important lever for the economy, but businesses are wary of intervention that could distort the market. Measures to help smaller domestic businesses are relatively popular, as they’re seen as giving a helping hand rather than artificial intervention, and are likely to create jobs and employment.

"Businesses prioritise clarity, stability and transparency on tax policy, so the focus for reform needs to be simplifying and streamlining the system rather than necessarily throwing new measures into the mix.”

The study shows businesses recognise they have an important role in building trust in the tax system. Transparency on tax reporting is seen to be of key importance, although there was agreement that more work is needed on the detail. The Business Jury discussed several options, including publishing details of all taxes paid as a percentage of turnover, and a corporate version of the personal income tax statement.

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Notes for Editor:

PwC hosted a Business Jury in September 2016, bringing together 17 businesses –from entrepreneurial start-ups to multinational – to discuss the priorities for tax reform as the UK moves towards Brexit. The findings were supplemented by a survey of heads of tax and other tax professionals, bringing the total participation in this research to 70.

For the Business Jury full report or interviews please contact Nicola Thorogood on 020 7804 6007 or [email protected]

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