15% Corporation Tax rate then eh George?

Why not just abolish it?

17 thoughts on “15% Corporation Tax rate then eh George?”

  1. One step at a time: a big step down in Corp tax plus a weak pound suits my place down to the ground- this is adding about 10% to our profits

  2. Corporation Tax is a tax on foreign (ie non resident) shareholders. UK resident shareholders pay through income tax (with a deduction for that tax at source through tax credits on dividends).

    As the the government provides (at least some) services of value to these foreign shareholders (eg law and order and defence) it is reasonable that they should pay something towards them.

    Best regards

  3. I can think of forty-three billion reasons not to abolish it.

    Sure, getting rid of all that paperwork might free up the economy a bit and increase tax receipts elsewhere. But that’s far from guaranteed; and it certainly wouldn’t happen overnight.

  4. Nigel: so I guess corporations don’t add any value to a country? They don’t employ people (who pay taxes), don’t buy services from other companies, etc?

    (In addition to providing stuff of course)

  5. NS
    Those foreign investors are contributing to the capital account, the surplus on which keeps the UK afloat. Furthermore, the employees of foreign companies increase the tax take by paying income tax, NI, vat, etc. And the companies themselves pay UBR and collect vat….We need foreign companies here, so phasing out the disincentive of corporation tax makes sense.

  6. @Emil: you guess wrong.

    What you are missing is that corporations (all other things being equal) add value that is independent of whether their shareholders are resident or non-resident. They also impose a load on government that is independent of that mix of shareholders.

    It is however the case that, without corporation tax, the more shareholders that are non-resident, the less tax is paid in the host country. Thus, to maintain the same government revenues, residents would have to pay more tax – of different sorts.

    The point about all taxes, and the mix of taxes, is not that more tax is better. It is that some things must be provided by government, and so need to be paid for. As far as is practical, the costs should be fairly divided amongst those that benefit (even though that is difficult). Totally removing corporation tax (rather than setting it at an appropriate level) goes against fair payment by those who benefit.

    Best regards

  7. @NigelSedgewick

    “They also impose a load on government that is independent of that mix of shareholders.”

    Which load is imposed on government?

  8. @ Nigel
    “Corporation Tax is a tax on foreign (ie non resident) shareholders. ”

    Strange, my company pays tax, and it’s British.

  9. @Justin: I gave examples of the load imposed on government (which is not otherwise more directly taxed) in my comment at 0825 today.

    @John square: Your company collects Corporation Tax and forwards it to the government. It is your shareholders that pay the tax, through the reduction in shareholders’ funds – which is why they are the ones to receive the tax credit on their dividend certificates. UK taxpayers can, in the right circumstances (higher-rate taxpayers), reduce such further income tax they must pay to the UK government on those dividends, by the amount of the tax credit. Those shareholders resident in other countries might or might not be able to offset (all or part of) the amount of the tax credit against income taxes due in their country of residence (or otherwise, eg federal taxes for USA citizens) – they cannot get back from the UK government, their apportioned part of the money paid as UK Corporation Tax. Thus it is the foreign shareholders who pay Corporation Tax. UK resident shareholders pay, effectively, a reduced rate of income tax on their dividends. This takes into account that Corporation Tax is levied on retained shareholder funds (eg, but not solely, for capital investment) as well as levied on distributed shareholder funds (ie dividends) – thus reducing shareholders’ retained funds and hence the value of the company.

    Going a little further, would John Square claim that his company pays its employees’ income tax, rather than is just compelled to collect it for the government through PAYE.

    Best regards

  10. Nigel: an entirely static analysis. It’s as if Panama and other fiscal paradises didn’t exist.

  11. Nigel: ah- you were referring to where the real incidence of tax falls.
    Apols: I misunderstood you.

  12. Thanks to MattyJ for reminding us that, from the start of FY16/17, the dividend tax credit has gone. Sufficient detail for most taxpayers can be found here: Tax on Dividends. Shareholders still get a bit of paper saying how much dividend they got from each shareholding; this forms the basis on which their additional UK income tax becomes due.

    As far as I can see, this changes some detail. It is still the case that UK resident taxpayers are liable for income tax on dividends. Though the system has become (IMHO) slightly more complicated than it was before, it is even more clearly the case that dividends are subject to UK income tax. It is just that the mechanism is now a bit different, in how government reduces the impact of double taxation.

    UK Corporation Tax still falls directly (real incidence – thanks JS) on non-resident shareholders.

    Without the mechanism of the tax credit certificate, it seems to me possible that some non-resident shareholders will find it more difficult to have their own (non-UK) income tax reduced because of Corporation Tax paid to the UK government. Or maybe some of them will do better by having the ability to treat UK Corporation Tax as deducted at the actual rate rather than only at the old and notional 10%.

    Best regards

  13. “As the government provides (at least some) services of value to these foreign shareholders (e. g. law and order and defence) it is reasonable that they should pay something towards them”

    How does a foreign shareholder in any of the world’s top 5 happiest countries ( ‘cos you want to live somewhere nice, right? ) gain any value for example from funding of the Royal Navy and the South Yorkshire Police?

  14. Henry Marsh – if the foreign shareholder has invested in a company that has operations in South Yorkshire, aren’t they (through their share of corporate income) benefiting from the security and rule-of-law provided by the South Yorkshire Police? Equally so for shareholders in companies who benefit from defense, security of merchant shipping, etc, vis-a-vis the Royal Navy?
    If the company is not gaining some benefit from operations in the UK, presumably it will relocate, no?

  15. Knock the CT down to 0%, and the workers will over time negotiate a higher value for their labour.
    I don’t like the idea of funding for UK police being somewhat dependent on foreigners who are not resident, and not represented.

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