UK will lose its status as world leader in corporation tax with imminent hike, study finds

The UK government’s decision to raise corporation tax to 25% means the country faces a 16-place drop in global corporation tax rankings, according to new research from accounting network UHY Hacker Young.

The UK corporate tax rate has remained at a historic low of 19% since 2017, making it the sixth lowest in the world. But a 6% rise, announced in the Spring 2021 budget and due to take effect in 2023, will see the UK fall to the twenty-first lowest spot, and just below the global average.

According to Andrew Snowdon, tax manager at UHY Hacker Young in the UK, the impending rise means that many international companies who previously saw the UK as an attractive place to do business may now be wondering if there are better opportunities and more favorable tax rates on the continent.

“For years, the UK has been known as an established place for international trade, and these upcoming tax hikes may cause investors to question the UK as a location,” Snowden said. .

Snowdon also argued that the UK’s “dramatic” increase will likely set a global precedent and prompt other jurisdictions to follow suit.

“Competition for the lowest tax rates seems to have ended,” he said.

Notably, the rise in corporation tax will only apply to the UK’s most profitable companies. From April 2023, companies with profits of less than £50,000 will continue to pay a corporation tax rate of 19%, and a sliding scale will be introduced for companies with profits between £50,000 and £250,000.

For Subrana Banerjee, president of UHY, this is a “vital” component of the new measures, due to the fragility and importance of small businesses.

“SMEs are an essential component of international economies,” he said. “In light of many countries’ post-covid recovery plans, it’s encouraging to see so many people continuing to support these small businesses.”

Overall minimum corporate tax rate

UHY Hacker Young research also noted the potential influence of the global minimum corporate tax rate set by the Organization for Economic Co-operation and Development (OECD), arguing that it could prevent future cuts.

The OECD announced in October that 136 countries had signed an agreement to apply a minimum corporate tax rate of 15% from 2023. The agreement will also allow countries to tax multinationals that make sales in their jurisdiction even if they have no physical establishment. presence there.

Due to growing political pressures, some low-tax jurisdictions will likely need to raise their corporate tax rates for multinationals. Countries like the Republic of Ireland have been criticized for their low corporate tax rate of 12.5%.

Large corporations are a key target of government crackdowns around the world, with some multinationals choosing to operate from low-tax countries, allowing them to record lower profits in countries with low tax rates. tax rates are higher.