With the world now being considered a global economy, we are often tempted to compare ourselves to other nations and take a cursory glance at least, at how they run their tax systems and execute their political agendas. Not only does this give us ideas, but can make us feel smug and envious in equal measure. Historically we felt closer to our European neighbours, not only culturally but financially.
Will Brexit change this forever? Now, more than ever it will become even more important to rub-shoulders with the nations outside of the EU, and perhaps adopt some of their views.
With the G7 summit taking place today in Italy, it would be interesting to compare the UK against these other countries and see how we stack up, wouldn’t it? The G7 (which used to be the G8, until Russia was kicked out), consists of the following countries: Japan, USA, Germany, UK, Italy, France & Canada.
Go on, be honest, could you have named them? I could have sworn that China was amongst them, and knew that Italy must be one if they are hosting it this year.
What qualifies these countries to be “in the club”? Well, they are an informal group of industrialised democracies that meets annually to discuss issues such as global economic governance, international security, and energy policy.
Hmmm…It’s all just politics really and being seen to lead the rest of the world; and to a certain extent stealing each other’s ideas, hand-shaking and hobnobbing with other super-influential leaders. For Donald Trump, it may be an opportunity to see how many wrists he can dislocate and leaders he can knock out of the way, to get to the front of the photo. Maybe he can’t wait to hold hands with Theresa May again?
I did read that there is an ice-cream shop in the Sicilian City that is hosting the event, are perfecting the “Coppa Trump,” or Trump Cup, a specialty ice cream they plan to serve ahead of the world leaders’ arrival on May 26th. The Trump Cup’s gelato will be the colours of the American flag, with strawberry, milk cream, and dark blue wild fruit ice cream arranged in the right order, and it will be topped with an orange swirl of cotton candy to pay homage to the American president’s “tuft”.
I wonder if they will offer him any?
Back in the UK, one of the policies that affect businesses directly that is being discussed, in light of the upcoming election, is Corporation Tax. The rate is currently 19%, set to reduce to 17% by 2020.
Labour have promised to increase this to 26%, which will cost the average small to medium sized business a small fortune, and perhaps sap them of much needed cash which could be put to better use and fund things like the creation of more jobs.Some would say this is short-sighted of Labour.
Let’s not forget the rate was a whopping 30% in 2008, and even though the rate has fallen, tax receipts has increased by 21% from the previous year, according to the Financial Times. This is partly due though to the surcharge on banks’ profits though.
The age-old question, would an increase in tax see businesses go elsewhere to trade? According to the Office of National Statistics the number of companies and public corporations has continued to rise and represents 68.8% of total businesses. The number of sole proprietors and partnerships has continued to decline and now represents 27.4% of the total.
This could be due to the lower tax rate, so would the opposite be true?
Global Corporation Tax
Well, let’s look at our democratic counterparts, the G7 countries. It seems that we aren’t doing too badly. These are the rates as at March 2017.
Corporation Tax Rates G7’s Members
|Japan||24%||Was over 30% not too long ago|
|USA||35%||Varies from 15-35% with a Federal branch rate at 30%. Trump has vowed to bring it down to 15%|
|Germany||30-33%||Made up of 15% + solidarity surcharge and trade tax|
|UK||19%||Was 20% until April 2017|
|Italy||24%||Reduced from 27.5% 1st Jan 17|
|France||15% profit up to 38,120€, 33% over 38,120€||Plus a social surcharge for tax liabilities over 763,000€|
|Canada||15% Federal + 11-16% Provincial||Branch profits too of 25%|
What’s clear is that in general rates have been coming down, but this is probably more to do with the fact that countries want to compete, coupled with the aftermath of the Global Financial Crisis, then any altruistic approach.
Ireland has a tax rate of 13%! You would be forgiven for thinking that this must be one of the lowest rates in the world; but no, depressingly, some countries don’t even tax profits. Our tax is pretty straight forward generally, no branch tax, surcharges (except for banks). Maybe Corporation Tax should be based on something other than profits? This is probably the easiest and fairest way, though.
Would it be better to introduce a threshold as many small businesses don’t make huge profits, and there’s a world of difference between large Corporations and the average SME. We can only hope that the other G7 countries will become green with envy at our low tax rates, and move to bring theirs down to compete. Maybe then, we can reduce our rate even further, and maintain our smug status?
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Along with over 13 years experience in the contractor payroll industry, and after spending most of his working life as a financial advisor in the regulated financial services industry, Mike has garnered an extensive network of contacts in the recruitment industry, many of whom trust both him and the One Click Group to handle their accounting. Mike has also been a member of various industry bodies throughout the years, such as the British Institute of Recruiters, in order to champion best practices across the contractor payroll industry.