The UK tax environment is undergoing some changes, some of which mirror those taking place on the continent, and some which are specific to the political path the government is on.
"The big theme is the transition of the UK tax regime from a higher ...
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The UK tax environment is undergoing some changes, some of which mirror those taking place on the continent, and some which are specific to the political path the government is on.
"The big theme is the transition of the UK tax regime from a higher tax worldwide regime to a lower tax territorial regime in line with government policy objectives to give the UK the most competitive corporate tax regime in the G20 and the best regime for headquarters in Europe," said Mat Mealey of Ernst & Young."The corporate tax roadmap has made Britain possibly attractive as a holding company destination again," says Martin Shah of Simmons & Simmons, "there's an upswing from clients here."
Legislative changes that will further these aims are very much in the pipeline, with commentators picking out a few that are more important than others. "A big change will be the control of foreign companies reform, which comes in January 2013, all about the taxing of foreign profits," said a tax partner."The new UK foreign companies legislation is a game-changer for UK and for foreign multinationals investing through the UK," adds Alex Chadwick of Baker & McKenzie.
Another big area of change is intellectual property (IP) planning: "The patent box is a very big thing. It is not the most attractive on paper necessarily, but the importance of the UK commercially makes us very attractive," said one adviser.
This year SMEs got a boost as HMRC introduced a higher rate of R&D relief. The relief on allowable R&D costs from April 2011 stood at 200%, and with parliamentary approval went up to 225% in April 2012. This is just one driver of the increased level of IP-related tax work in the UK over the past 12 months.
And the main corporate tax rate will fall to 22% by 2014, rather than 23% as previously planned.
"The competitive landscape has changed, due to a combination of a rate reduction coming in more steeply, and the patent box and R&D credits," says a partner.
One thing that is consistent with Europe is the increased vigour that the tax authorities are bringing to enforcement, something that exasperates some practitioners: "The authorities certainly have increased their aggression. You find that they take entrenched, intransigent positions which make others scared to take the initiative and negotiate a deal. We understand they have a public role to carry out, but help us too! We're business, we bring in revenue too," said one.
"Revenue is taking a more detailed approach, enquiries are more detailed and onerous, squeezing for every pound they can," said another.
The usual effect of this is a surge in litigation, but this is not something that has been seen this year: "Actual litigation is not a growth area. The revenue is getting cannier, picking its cases to get good precedents," said a lawyer.
"By and large, the cost of litigation outweighs the benefit. It is an inefficient process that can be a lottery. I get my clients to avoid it if at all possible," commented an adviser.
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