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11 October 2015 |
Corporation tax and tax avoidance is an important and controversial contemporary issue, one which is often debated in a variety of forums. The most high-profile cases include successful companies such as Starbucks, Amazon and Google who effectively paid no corporation tax at all. Many argue that a solution to ensure corporations do not avoid tax is to simply lower the corporate tax rate, although some state that such a solution would be unfair. This article provides an overview of the debate whether lowering the corporate tax rate in the UK would be beneficial, from a variety of perspectives.
Ireland is a good example of a country that decided to drastically lower their corporation tax (it is currently 12.5%), whereas the United States is an example of a country with a high corporate tax rate (35%). The United Kingdom corporation tax is 20%.
Tax affects all companies operating in the City and will form a key consideration for virtually all transactions. Tax also has a political element, being one of the mechanism by which the government can impact the economy. It is therefore crucial for candidates seeking to enhance their commercial awareness to develop an understanding of the role of tax in society and economics.
Capital allowance regimes
A capital allowance is the sum of money a business in the UK can deduct from its profits why they purchase certain types of assets. The more expenses a company has, the less corporation tax it will pay. This is because the tax is calculated as a percentage of the profit, i.e. after expenses have been deducted.
Capital gains tax
A percentage of the profit from the sale of certain types of property or assets is collected by the HMRC. This applies to both private individuals and corporations.
Tax planning, evasion and avoidance
Tax planning refers to the legal activities carried out to avail a company of legitimate tax concessions. Tax evasion refers to illegal activities carried out to avoid tax, which can involve elements of fraud or non-disclosure. Tax avoidance covers the grey area in between and can be described as activities that are in line with the law but not its spirit. This is particularly problematic as exactly where the boundary is between legal tax avoidance and illegal tax avoidance can be difficult to determine.
Value Added Tax
VAT is a percentage paid in tax by the end-consumer on goods and services.