In typical Conservative fashion, it was once the Government’s plan to lower the corporation tax rate from 20% in early 2016 to 17% by 2020.

But then, shortly after the EU referendum, when fears ran rampant that international businesses would pull investment from the country, the former Chancellor of the Exchequer, George Osborne, pledged to cut corporation tax from 20% to 15% to build a “super-competitive economy”.

John McDonnell, the Shadow Chancellor at the time, decried the proposal, saying:

“It’s not constructive to get into this situation where you are virtually offering up to Europe Britain as a tax haven.”

At one point in late 2016, Theresa May’s advisers even reportedly suggested the Government could halve corporation tax to 10% if it couldn’t reach a deal with the EU – lower than the Republic of Ireland’s 12.5%, which was “the biggest tax haven in the world in 2015”.

But now, with the UK having finally left the EU, have concerns that Britain might become a low-regulation tax haven come to pass? Here’s our view, along with advice on dealing with overseas clients.

Is the UK turning into a tax haven?

A tax haven is a country or territory that tries to persuade foreign businesses to invest in them. Financial secrecy and loose financial regulations are two ways to do this. Low tax rates are another.

But since the EU referendum, the UK Government has not decreased the rate of corporate tax – though it would have, had it not been for the COVID-19 pandemic, which halted plans to get it to 17% for the year starting 1 April 2020.

And, on 3 March 2021, chancellor Rishi Sunak asked businesses to contribute to the UK’s economic recovery with an increased corporate tax rate of 25%, which will come into effect in April 2023.

He was, however, quick to point out how 25% was still the lowest corporation tax rate in the G7, highlighting how the Government desires a “competitive” economy.

The Government certainly wants a “competitive” economy to entice foreign investment, a desire we can see in a new financial services bill, which proposes that regulators must “have regard” for the attractiveness of the UK as a place for “internationally active investment firms to be based or to carry on activities”.

A report from a task force for innovation, growth and regulatory reform reads:

“UK regulation can be a significant driver of our international competitiveness”.

Then there are the words of the Prime Minister, who met with business leaders to reform EU rules and encourage “regulatory freedoms” in January of last year.

A Government source reportedly said the Prime Minister was pushing for Britain to become a low-tax, low-regulation regime specifically like Singapore, which, coincidentally, is the ninth largest haven in the world, according to the Tax Justice Network’s Corporate Tax Haven Index 2021.

Freeports

Of potentially greater concern is the Government’s championing of freeports, eight of which were announced in Sunak’s Spring Budget.

Special economic zones with different rules, tax breaks and light-touch regulations make it easier and cheaper to do business.

They typically favour larger companies that take advantage of the UK’s educated workforce and publicly financed infrastructure without paying for them through appropriate taxation.

They also attract firms that are primarily concerned with paying a lower tax rate. Unfortunately, those also tend to be the type of companies that will move to another jurisdiction if it makes them a better offer.

In short, freeports bring the tax havens of the offshore world and bring them onshore.

Dealing with overseas clients

If you have clients overseas, cloud accounting is probably one of the most important practises you need to invest in if you haven’t done so already.

We all know how important regular communication with clients is, but cloud accounting makes it far easier to communicate reports and details of your clients’ finances.

Meanwhile, different and complex tax regimes abroad can be made easy for you to understand and get right with cloud accounting.

If you need help with your overseas clients, don’t hesitate to get in touch with us for advice.