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Dec 01

Corporate tax change to bring billions into UK

Posted by nicklord in Taxcompliance


This blog has long contended that one of the benefits of the financial crisis is that governments around the world are bending over backwards to improve the conditions in which private sector companies do business. On Monday we reported on the UN's Doing Business report which corroborated this view with comprehensive figures from around the world.

But it is not just emerging markets. The UK's new coalition government has made being business friendly a cornerstone of its economic policy from the day it came to power last May. A new tax rule announced on Monday shows how serious the government is in not only attracting new companies into the country but also in persuading British companies to stay and not move to lower tax jurisdictions as so many have already done.

The new tax rule allows companies to pay a 10 percent tax rate on profits generated from products that were developed in the UK. This essentially subsidizes new research and development in the UK. Coordinated with the new rule change was the news that as a result of it, GlaxoSmithKline the pharmaceutical company will invest some £500 million into a new factory in the UK, its first new factory in the country in 30 years.

Experts were quick to hail the new tax rate. PwC said that it would increase the available amount of money to be reinvested in the UK by 14 percent, an amount that would amount to "billions." The usually statist European Commission is conceding that the UK policies of pro-business growth will lead it to grow faster than "Germany, France, Japan the United States of America and the average for the eurozone and the EU" over the next two years.

The UK government does have its work cut out, in trying to promote growth while also tackling a huge budget deficit. It has been fairly castigated for sticking with some of the policies of the previous socialist government such as a rise in the consumption tax and the retention of the top-rate 50 percent income tax.

What it is clearly doing is keeping pressure on the consumer while making life easier for companies. This would rebalance the economy away from domestic consumption towards corporate investment.  This mainly means cutting red tape and freeing businesses from the shackles of the state.

"Brick by brick we will remove the barriers that are holding Britain back," said Chancellor George Osborne as he revealed the new tax rules on Monday. It is a policy that is sure to find strong support among companies operating in the country.

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