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2010 UK Emergency Budget - Chancellor announces corporate tax cuts

UK

This was an important first Budget for the Liberal Conservative coalition.The focus on spending cuts is an economic necessity; however there have also been a number of fiscal measures. There have also been a number of headline grabbing changes to the CorporationTax, VAT and Capital Gains rates. Taxand UK analyses the 2010 emergency budget in depth.

Our Taxand colleagues are less than convinced by the phased reduction in the corporation tax rate and concern exists that the changes in the capital gains tax rate may exacerbate the brain drain.

Taxand's Take

"There have also been a number of headline grabbing changes to the CorporationTax, VAT and Capital Gains rates.There is scant detail on many of the other key areas such as the new bank levy and the on going reform of controlled foreign companies. Many of the more detailed Budget Notes actually refer to minor changes announced in previous budgets but which were not implemented in Finance Act 2010" David Pert, Taxand UK

"The drop in the corporation tax rate will not be sufficient to compete for international investment. The Netherlands is expected to increase VAT rate to approx 20% and decrease the corporation tax rate to approx 20%. The bank tax offers opportunities for other countries to attract financial institutions (provided that they don't join the bank tax)." Marc Sanders, Taxand Netherlands

"Spain is likely to concentrate on VAT and personal income tax rises and I find the drop in the corporation tax rate to be interesting. However, this change, inisolation, is unlikely to stimulate investment into the UK." Vicente Bootello, Taxand Spain

"The decrease in the corporation tax rate seems a somewhat unexpected move given the tight financial situation. It is highly likely that this will be more than compensated for through other tax changes to come (such as the increase in VAT impacting consumers and businesses not able to pass on the increased VAT)." Arianne Jerey-Hener, Taxand Germany

"The increase in the capital gains tax rate could trigger an exodus of talent from the UK to other jurisdictions. Whilst a corporation tax rate of 24% is competitive by G20 standards, it is still almost double the rate in Ireland." Martin Phelan, Taxand Ireland

"The drop in the corporation tax rate will do little to attract investment to the UK from jurisdictions that have historically taken a more pro-business approach to taxation than the UK." Keith O'Donnell, Taxand Luxembourg

"The US has introduced a raft of non-business friendly tax law changes in recent months that have increased the administrative compliance burden on companies at a difficult time. The UK appears to have introduced a favourable reduction in the corporation tax rate - however, businesses will be concerned about how this is going to be paid for with other restrictions." Becky Hoover, Taxand US

Your Taxand contact for further queries is:
David Pert
T. +44 207 715 5208
E. dpert@alvarezandmarsal.com

Download the full analysis from Taxand UK here:

Taxand's Take Author