More to be done to stop firms moving overseas

November 30, 2010 12:36 PM

Yesterday we heard that the Government wants to overhaul the Controlled Foreign Companies Tax (CFC). This is good news, as it may help stop businesses from moving overseas to more receptive economies. If firms move out of the UK then the Treasury will lose tax revenue, jobs would be lost and consumers would miss out on desireable products and services. Also announced was a 10 per cent Corporation Tax on new products developed in Britain, which will encourage innovation too.

But there are other taxes that could see entrepreneurs choose to do business elsewhere. The 50p tax rate needs to be scrapped so it doesn’t have the same effect. Matt Sinclair wrote last year that the 50p rate could mean a top combined marginal tax rate of 92 per cent for successful entrepreneurs on income earned, saved, invested in a company and passed on to children. At a time when we need to encourage new businesses to form and grow, this is a massive disincentive for would-be entrepreneurs. It is also highly questionable whether it will be bring in any extra revenue at all.

The VAT hike and Capital Gains Tax will also influence a firm’s decision to do business in the UK and as my colleague Josh Mead blogged this morning, cutting VAT could help to create jobs and develop new opportunities with emerging markets.

Of course, yesterday’s announcements are welcomed, but only as a first step; much more can be done. The tax system is too long and too complicated, and needs to be radically simplified. At a time when we want to encourage dynamic private sector businesses to thrive, creating the best conditions possible for them to do this is crucial – and that also means dealing with burdensome regulations that hold firms back. It’s important that we are tax competitive to ensure firms and entrepreneurs don’t leave, and that more are encouraged to start up here. Jobs and growth will follow.Yesterday we heard that the Government wants to overhaul the Controlled Foreign Companies Tax (CFC). This is good news, as it may help stop businesses from moving overseas to more receptive economies. If firms move out of the UK then the Treasury will lose tax revenue, jobs would be lost and consumers would miss out on desireable products and services. Also announced was a 10 per cent Corporation Tax on new products developed in Britain, which will encourage innovation too.

But there are other taxes that could see entrepreneurs choose to do business elsewhere. The 50p tax rate needs to be scrapped so it doesn’t have the same effect. Matt Sinclair wrote last year that the 50p rate could mean a top combined marginal tax rate of 92 per cent for successful entrepreneurs on income earned, saved, invested in a company and passed on to children. At a time when we need to encourage new businesses to form and grow, this is a massive disincentive for would-be entrepreneurs. It is also highly questionable whether it will be bring in any extra revenue at all.

The VAT hike and Capital Gains Tax will also influence a firm’s decision to do business in the UK and as my colleague Josh Mead blogged this morning, cutting VAT could help to create jobs and develop new opportunities with emerging markets.

Of course, yesterday’s announcements are welcomed, but only as a first step; much more can be done. The tax system is too long and too complicated, and needs to be radically simplified. At a time when we want to encourage dynamic private sector businesses to thrive, creating the best conditions possible for them to do this is crucial – and that also means dealing with burdensome regulations that hold firms back. It’s important that we are tax competitive to ensure firms and entrepreneurs don’t leave, and that more are encouraged to start up here. Jobs and growth will follow.

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