One-Quarter Of UK Business Owners Mulling Plans To Quit UK Over Tax

by Robert Lee, Tax-News.com, London

27 October 2008

One-quarter of the UK's business owners are thinking about relocating overseas in the next three years as a result of the UK's unfavourable tax and regulatory environment, according to a recently-published survey.

The poll by the accounting and advisory firm Tenon Group found that 26% of respondents are mulling plans to leave the UK, whilst 1 in 20 have already made plans to set up shop overseas. This rises to 30% among those business owners who have had prior experience of steering a company through a recession.

Corporation tax is the area of legislation most highly disliked by entrepreneurs, with 37% of those considering leaving the country citing this tax as the main factor. Capital gains tax and the abolition of taper relief was a key motivation for 16%. Entrepreneurs also continue to feel over-burdened by increasing employee rights, with 24% thinking about leaving the country for this reason.

Income shifting legislation, due to be introduced in 2009 to prevent individuals from shifting part of their income to another person who is subject to a lower rate of tax, is also giving entrepreneurs cause for concern. Almost half (43%) of those running family businesses expect tax bills to increase as a result, with 9% claiming they will have to stop employing family members and 4% believing they will have to close their business because of the impact of this change in legislation.

Government indecisiveness on tax legislation is also impacting business activity, with 41% of the respondents less inclined to take risks, and 27% reporting that they are delaying business decisions. Over one-third (36%) of business owners questioned by Tenon admit that they do not understand what some legislation means for them and their business.

Andrew Jupp, Head of Tax at Tenon, commented: "Entrepreneurs are genuinely struggling in the current legislative and economic environment and the government must heed this call for help in order to avoid losing some of the country's most talented business people."

The results of the survey are perhaps not surprising given the column inches devoted to stories of major UK multinationals switching their tax bases to more favourable jurisdictions such as Ireland. One company that has done precisely this is WPP, one of the world's largest advertising groups. Earlier this month, the company's head, Sir Martin Sorrell, (somewhat ironically) chaired the inaugural meeting of the International Business Advisory Council, Mayor Boris Johnson's advisory group which aims to maintain London's pre-eminent position as a business centre.

"It's clear from what I have heard that the government must rethink its strategy on taxation as many Council members reaffirmed that the current system is highly likely to drive more great wealth creating enterprises like Sir Martin's WPP to base their headquarters overseas where they feel the tax demands are fairer," Johnson said.

However, recently-published OECD figures suggest that UK companies may, in fact, not have it that bad in terms of tax. According to the OECD, the UK's overall tax burden stands at 36.6% of gross domestic product. This is slightly higher than the OECD average, but is lower than the European Union average. The study also showed that the UK's administrative systems were mostly consistent with other OECD members, while top income tax rates, labour taxes and value-added tax also compared favourable with its European counterparts.

According to Jeffrey Owens, director of OECD Centre for Tax Policy and Administration, the UK's tax system is being underestimated by the business lobby, which, he told the Financial Times, is sensing a good opportunity to press for lower taxes "in the tail end of this government."

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