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The UK's corporate tax system must be urgently overhauled if the country is to regain its status as an internationally competitive location, argues a new report.
The paper from the CBI's Tax Task Force claims the UK has reached a tipping point: the ever-rising business tax burden and the failure of the tax system to respond to increasingly global business activity is creating a corporate tax system that is unsustainable in the long-term.
The report makes clear that the advantages the country gained from cuts to corporation tax during the 1980s and late 1990s have been lost.
Other countries have taken bold steps to cut their rate, while the UK's has lagged and is now higher than the OECD average of 26.8%, even after the forthcoming cut from 30% to 28%.
The 12 tax experts who made up the independent task force have recommended a root-and-branch overhaul, with a wide-ranging programme of reform to include:
- A headline corporation tax rate of 18% within eight years.
- Tax calculated on the basis of existing company accounts, scrapping the current system where firms have to maintain two sets of books.
- A 'no surprises' legislative and administrative process, with more time allowed for proper consultation on tax proposals, better resourced and effective parliamentary scrutiny, and limited budget secrecy.
- A non-political, independent tax law commission, established to monitor and review existing tax law and suggest improvements.
- Proactive Government action on all cross-border tax issues, co-ordinating with other governments, including on treaties to assign primary taxing rights.
- A simplified and improved tax system to stimulate the growth of small and medium-sized enterprises, with an exemption from rules intended for multi-nationals, a small firms corporation tax rate brought back rapidly to 18% within three years, and the SME investment allowance doubled to £100,000.
CBI director-general Richard Lambert said: 'Our traditional tax system is no longer fit for purpose and is making the UK look increasingly uncompetitive. We need bold action to restore a competitive headline rate of corporate tax.
'An 18% business rate within eight years would help restore the UK's low tax credentials. But a radical shake-up is also vital if clarity, certainty and simplicity are to be reintroduced to the system so firms can plan with confidence and make Britain their long-term home.
Mr Lambert urged: 'The Government should clear away the thick layer of silt that has built up over time in our tax system.
'[Ministers] need to have the confidence to permit a serious, non-political, dialogue about where the business tax regime should be heading, what it needs to achieve, and what we want it to look like in ten years' time.'
