Tax chat - Corporate rate cuts good signal but innovation incentives important too

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Out at another couple of companies this week talking about tax. These were large companies, one in specialty chemicals, one in aerospace.

First thing that comes through loud and clear is that if we think big cuts to the headline rate of corporate tax are going to radically ramp up investment from big manufacturers we need to think again.

Other business drivers such as being close to markets, following OEM customers, and the supply of skilled labour were seen as much more important to determining where investments are being made. Highlights the importance of coordinated action across multiple areas to support growth.

However, tax IS an important secondary consideration.

One company told me the signalling effect of cutting the headline rate shouldn't be underestimated. It gives company's a sense that the government is moving in the right direction. The more confidence companies have this direction will be maintained the stronger this impact will be rather than the precise change per se.

Another company said that tax is an important 'tie-breaker' when locations are similar in terms of other characteristics e.g. some of our European competitors.

But we also discussed the importance of other parts of the tax system.

Sourcing is also influenced by tax. The scrapping of industrial building allowances (finally ending last fiscal year 11/12) meant one company wouldn't build anymore factories here - it would lease them instead - is that what the government wants?

Another company was fired up about the R&D tax credits and Patent Box. The credit compared favourably with other countries, notably the U.S., and is widely known amongst the large corporates. The Patent Box was also seen as a positive...though would it encourage the development of more patented technology in the UK was less clear.

Tax compliance and administration is an age old tax complaint. The mentality of the tax authorities was noted as being unhelpful - assumption seems to be that default position for companies was to avoid tax. Many attempts to curb avoidance were catch-all and created cost for companies that are compliant without catching the real tax avoiders.

HMRC's large company service with its 'customer relationship managers' was seen as positive; all the quality of CRMs is seen as variable and the benefit needs to be kept in perspective - if the tax legislation is still horrendously complex, the CRM can't do much.


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