The recent hike in the corporation tax rate has created a climate of uncertainty for businesses in the UK compared with international competitors
The tax environment in the UK is described as the ‘least predictable’ for businesses while constant ‘tinkering' with the tax code makes it hard to plan ahead and commit long-term investment, while high personal income tax and property taxes are all contributing to a lack of productivity growth, according to the CIMA AICPA Tax and Productivity Report.
The UK has the second highest headline corporation tax from the eight countries surveyed, which was made worse by the recent increase to 25% from 19% in April, only behind Australia with a 30% rate, which it plans to reduce to the same as the UK’s.
Making corporation tax more competitive could boost the investments necessary to increase the UK’s productivity rate.
High rates of stamp duty land tax (SDLT) are also putting people off relocating for career opportunities, another factor restricting productivity growth due to the declining mobility of the workforce, CIMA said.
As well as individuals being reluctant to move, larger companies are also delaying decisions to relocate due to high rates of tax.
In addition, high marginal income tax is another factor affecting the lack of productivity growth. Those receiving a child tax benefit and earning between £50,000-£60,000 are seeing a tax rate of nearly 70% when the higher rate child benefit charge is factored in.
This can lead workers to avoid working longer hours, rejecting promotion opportunities, and deterring them from contributing higher amounts into pension pots to compensate for the higher rates.
The report called on the UK government to provide tax certainty to ensure businesses can pro-actively prepare for the future and invest strategically. This is proved by other countries with stable productivity growth having steady taxation policies.
Changes to taxation should be looked at with a long-term perspective ensuring that changes are permanent with less one-off, temporary tax measures. Laying out tax plans at least two years in advance would encourage companies to then invest confidently.
Andrew Harding, chief executive – management accounting at AICPA & CIMA, said: ‘Tackling the poor rate of productivity growth is the most important economic issue facing the UK today.
‘The tax system and a lack of tax certainty is contributing to the problem. Corporation tax is set at an uncompetitive rate, while workers are being deterred from moving to locations where their skills are needed by high levels of and complicated stamp duty.
‘The burden of tax and constant tinkering, coupled with the global political-economic situation, do little to grow confidence and drive investment in the UK. I hope the Chancellor’s Autumn Statement will include measures to address these issues.’
The report analysed tax data from UK, Australia, Ireland, Finland, Singapore, Denmark, Sweden and Norway.