UK Business To Pay GBP4bn In Extra Tax Over Three Years

by Robert Lee, Tax-News.com, London

18 April 2008

British business faces a tax hike of over GBP4bn over the next three years as a result of fiscal measures that went into effect at the start of the new tax year on 6th April, an analysis of Treasury figures by the Confederation of British Industry (CBI) has claimed.

The net increase comes despite the 2% cut in headline corporation tax, and undermines the government's claim to be boosting the UK's international tax competitiveness.

At a time of economic slowdown and uncertainty, the government should be helping business keep the economy growing, not raising taxes, the CBI argued.

However, its analysis of this month's new tax rules shows that UK businesses will pay a net total of GBP4.21bn in taxes by 2010/11, on top of existing financial demands.

Breaking this down, companies will pay an extra GBP1.84bn in tax in 2008/9, GBP1.24bn in 2009/10, and GBP1.13bn in 20010/11.

The majority of this comes from the loss of plant and machinery investment allowances, and the abolition of empty property relief.

The penny in the pound increases to the small business tax rate (from 19% to 20% last year, rising to 22% in 2009/10) will also deal smaller companies a heavy financial blow, the CBI warns.

Commenting on the findings, John Cridland, deputy director-general of the CBI stated that:

"When the economy is slowing, the last thing a government should do is raise taxes on the part of society which creates jobs and wealth, but that's what's happening."

"The consequence will be that hard-pressed companies, which are already paying high rates of tax, will find life getting even tougher."

"Despite enjoying a decade of strong growth and stable economic conditions, the government has little room to manoeuvre to give the economy a booster shot in the arm when most needed - instead it is leaning on the business community to shore up its finances."

Cridland continued:

"The UK has been slipping down the league table for international tax competitiveness for years and has become increasingly less attractive to overseas investors, and today's changes will make this even worse."

"This has been exacerbated by the abrupt changes to capital gains tax and the poorly handled reforms of non-domicile taxation - personal issues rather than business tax but ones that heavily influence the general business climate."

Last month an independent taskforce commissioned by the CBI published its analysis of the UK tax regime, and argued that the system was in need of a radical overhaul.

It used dynamic analysis to show that cutting the headline rate of corporation tax to 18% over eight years was not only affordable but would boost tax receipts over the long term.

According to the World Economic Forum, the UK has slipped from 4th place in 1998 to 15th in 2003 on the Global Competitiveness Index.

In addition to the tax changes, several new employment regulations also came into force on 6th April, including new rules on consulting employees in small firms and amendments to discrimination law.

These changes will add GBP303mn to business costs and bring the total cost of the 42 new employment regulations introduced since 1998 to over GBP49bn, according to the CBI.

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