Within days of the UK’s decisive vote to leave the EU, the former Chancellor George Osborne had pledged to cut corporation tax to below 15% – five points lower than its current 20% rate and the lowest of any major economy.
His successor Philip Hammond has since indicated that he is willing to “reset” the government’s tax and spending plans to avert an economic downturn.
The new Chancellor’s overhaul of fiscal policy is not expected until the Autumn Statement, but corporation tax is already making headlines.
The UK has long had the lowest rate of corporation tax in the G7 group of major economies – an honour it has held for most of the past 15 years.
So the proposal to cut it even further has drawn fire from other European countries, who worry that a post-Brexit UK that positions itself as a corporation tax haven will grab international investment that might otherwise have gone to them.
At the end of August, the Swedish prime minister Stefan Löfven warned that “aggressive” tax cuts by Britain could sour Brexit negotiations – a warning that was promptly dismissed by the UK.
But while corporation tax has hogged the limelight, British businesses could receive a less obvious but potentially bigger fiscal boost from another source – tax relief.
Business tax relief to rise?
At present, several tax incentives offered by the UK government to help young businesses are restricted in the amount of tax relief they can offer.
The limits are imposed by the EU, which deems excessive tax giveaways to be “State Aid” and contrary to the idea of a single European market.
The tax reliefs currently subject to EU State Aid rules are:
The EU State Aid restrictions would cease to apply to a post-Brexit Britain, freeing Westminster to increase the value of the existing tax breaks, or introduce new tax incentives if it sees fit.
However it’s worth remembering that the UK wouldn’t have a completely free hand. As a member of the World Trade Organisation, Britain would still have to comply with WTO rules on state subsidies.
Who and when?
Any new tax reliefs or incentives could be very specifically targeted. The government may choose to use them to boost the “Northern Powerhouse”, for example, or a certain area of R&D.
With the full impact of the Brexit vote yet to filter through to official economic data, the government is still calibrating its fiscal response.
Any move on reducing corporation tax rates is likely to come in this year’s Autumn Statement or next year’s Budget. A move on “State Aid” tax incentives will have to wait until Brexit has happened, but the government may start to outline its policy well in advance. With the terms of Brexit yet to be negotiated, the EU still has a degree of leverage over UK policy, but it’s fading fast.
With the Tory government keen to trumpet its pro-business credentials and many economists calling for a stimulus to counter the risk of a downturn, a tax boost for British business is fast starting to look a racing certainty.
Given that a cut to corporation tax already has already been announced, the next Brexit tax bonanza could come in the form of business tax reliefs.
So if your business claims one of the reliefs listed above, or if you think your firm may be eligible, contact the corporate tax team at HW Fisher & Company now to find out more.
Toby Ryland, Corporate Tax Partner
T 020 7874 7959