United Kingdom corporation tax
Corporation tax in the United Kingdom is a corporate tax levied in on the profits made by UK-resident companies. Until 1 April 1965, companies were taxed at the same income tax rates as individual taxpayers, with an additional profits tax levied on companies. Total net corporation tax receipts were a record high of £56 billion in 2016–17.
About United Kingdom corporation tax in brief
Corporation tax in the United Kingdom is a corporate tax levied in on the profits made by UK-resident companies. Until 1 April 1965, companies were taxed at the same income tax rates as individual taxpayers, with an additional profits tax levied on companies. The Tax Law Rewrite Project has been modernising the UK’s tax legislation, starting with income tax. The tax has slowly been integrating generally accepted accounting practice, with the corporation tax system in various specific areas based directly on the accounting treatment. Total net corporation tax receipts were a record high of £56 billion in 2016–17. The UK government faced problems with its corporate tax structure, including European Court of Justice judgements that aspects of it are incompatible with EU treaties. Tax competition between jurisdictions reduced the main corporate tax rate from 28% in 2008–2010 to a flat rate of 20% as of April 2015. The Labour government, supported by the Opposition parties, carried through wide-scale reform from the Tax law Rewrite project, resulting in the Corporation Tax Act 2010. This method of corporation tax is known as the classical tax system and is similar to that used in the U.S. and the United States. In the UK, dividends suffered double taxation, with a higher tax rate on dividends than on profits retained within the company. The classical system was reintroduced in 1999 with the abolition of advance corporation tax and of repayable dividend tax credits. It was then reverted to revert to a uniform rate on all profits, but additional tax was then payable if profits were distributed as a dividend to shareholders.
The final abolition of taxes on capital distributions reflected ideological differences between the Conservative approach to capital distributions, while Labour sought to force companies to retain profits for reinvestment in the company’s workforce. This final abolition reflected the Conservatives’ desire to distribute profits to capital holders elsewhere, and Labour’s hope that this would force the company to reinvest in the workforce in the UK. The corporation tax Act 2010 was passed by the House of Commons in May 2010, and has been in force since. It is the first time since the 1970s that the corporation Tax Act has been amended to include a rate of up to 20%. It was introduced to reduce the tax burden on companies and associations with permanent UK premises. It has also been used as a tool to combat tax avoidance schemes marketed by the financial sector, which have been countered by complicated anti-avoidance legislation. The new corporation tax rates are expected to be introduced by the end of this year, and will be in line with the European Union’s new rules on corporate tax. It will be the first major change in corporation tax since the introduction of the European Convention on Economic and Monetary Union (ECE) in 1998. The first major amendment to corporation tax saw it move to a dividend imputation system in 1973, under which an individual receiving a dividend became entitled to an income tax credit representing the corporationtax already paid by the company paying the dividend. The current system was introduced in 1999.