Essay: England Corporation Tax

Sample Essay

Words 1,540

“Statutory corporate tax rates have been lowered in the United Kingdom and elsewhere… While the United Kingdom was early in cutting tax rates and had strong tax competitiveness, others have caught up. And some countries now have considerably lower tax rates, even after the recent announcement to cut the UK statutory corporate tax rate from 30% to 28% in 2008.” (Tax competition, 2007) These tax cuts have been attracting more “investment and capital, and they pose a threat to America’s economic competitiveness.” (Corporate Tax War, 2007, p. A20)

“A U.K. resident individual shareholder in receipt of a dividend from a U.K. resident company receives a credit of 1/9 of the dividend and pays tax on the “grossed up” amount of the dividend (i.e., the aggregate of the dividend and the tax credit).” (Webb, 2007) According to a new law shareholders do not have to pay high tax rates and will stick to a basic of 22%. Instead the tax will be levied on a gross total of all the dividends and lesser and reduced tax rate will be applied. (Webb, 2007) “Where such a shareholder is liable to higher rate income tax, he will pay tax on the grossed up amount of dividends received at the rate of 32.5%, but will again be able to set off the tax credit against this liability.” (Webb, 2007)

“In July 1997, the new Government began a series of reforms of tax credits and corporation tax payments. Payments of tax credits to pension schemes and UK companies were abolished on dividends paid on or after 2 July 1997 and the remaining payments of tax credits were cut from 6 April 1999.” (Corporation Tax, 2006) Later Foreign Income Dividends and the ACT were abolished and new system was found to levy taxes. (Corporate Tax, 2006) The United Kingdom like Germany has been revising its corporate taxes and is trying to implement a new system so it can be more competitive in the global financial market. (Corporation Tax Reform, 2002) “Sustainable growth and economic stability are built on the platform of a thriving business sector. For that we need a modern tax system that underpins business competitiveness and raises revenues in a manner that best supports commercial decisions that businesses have to take on investment, on jobs and on legal and operating structures.” (Corporation Tax Reform, 2003) The UK has changed many things about its corporation tax since 1997. The tax levied on corporations is now down by 30 percent and small companies have more benefits and enjoy a zero percent rate. (Corporation Tax Reform, 2003) Although they “have introduced new flexibility, removed distortions and taken the necessary measures to combat tax avoidance,” the United Kingdom feels that there are “further steps needed if we are to ensure that the corporation tax regime meets the challenges of the modern business environment, does not impede the drive to greater economic efficiency, productivity and growth, and keeps pace with European and international developments.” (Corporation Tax Reform, 2003)

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