UK Tax: Evolution Over The Last 10 Years

In a recent Tax Journal article, Andrew Howard examines UK tax trends over the last decade.

How things have changed.

At the beginning of the last decade attitudes to company taxation in the UK had already begun to change. The corporation tax rate, stable at around 30% for most of the previous decade, had just begun its downwards trajectory to what looks like being the low water mark, its current rate of 19%. At the same time the ability of companies to manage the rate they actually paid had already begun to come under scrutiny. The story of the first half of the decade was a lower rate, but one which needed to be paid. The UK introduced a general anti-avoidance rule in 2013 (which could come as a surprise to the political parties which currently have a GAAR in their manifestos), which made a point of specifically disavowing some old tax cases which were used to justify tax avoidance, most famously Lord Tomlin from the Duke of Westminster case in 1936: 'Every man is entitled if he can to order his affairs so that the tax attracted under the appropriate Act is less than it otherwise would be.' Attitudes also shifted among the judiciary and HMRC has been able to claim a very high success rate in cases where it argued tax avoidance. While political parties routinely make up the numbers by identifying billions to be collected by closing down unspecified tax avoidance schemes, experience on the ground at the end of 2019 is that it is extremely rare to see a company contemplating entering into a tax avoidance scheme.

Meanwhile, in the first half of the decade, on the international front, the UK, following the plan set out in the 2010 corporate tax road map, focused on enhancing the international competitiveness of the tax system, looking to attract and maintain companies that had begun to move their headquarters abroad. The main plank was to continue the UK's move to a territorial tax system by reforming the UK's controlled foreign company rules. The UK would only seek to top-up tax on profits earned by non-UK subsidiaries of UK companies where those profits had artificially been diverted from the UK. Combined with the distribution exemption and the substantial shareholdings exemption, this meant that MNEs could headquarter in the UK and pay very little corporation tax. In the middle of the decade, this led to some US companies 'inverting' to the UK, until US rules changed to prevent this. The roadmap also confirmed the UK's proud adherence to the...