Grant Thornton’s senior tax partner worries government efforts to create a competitive tax system could be thwarted by sensational media attention of corporate tax avoidance

In his 2013 Budget, the Chancellor reinforced the government’s objective of ‘building the most competitive tax system in the world’. It is clear this is a policy it is determined to see through. Since the coalition came to power, the main rate of corporation tax will have fallen from 28% in 2010, to 20% by April 2015. In addition, the government has introduced several new tax incentives in an attempt show ‘that Britain is open for business’.

One headline initiative is the introduction of the Patent Box regime. From 1 April 2013, worldwide profits derived from qualifying patents can be subject to a reduced rate of tax which will be phased in over five years, eventually reducing to 10%.

To further encourage research and development activity, an above the line tax credit has also been introduced, with an increase in the rate, from 9.1% to 10%, in the Chancellor’s Budget. Furthermore, three new tax reliefs for the video games, animation and high-end television industries will be unveiled (subject to EU state aid approval).

These will offer an extra deduction at a rate of 100% of qualifying expenditure or a payable tax credit at a rate of 25% of qualifying losses surrendered. These are all welcome initiatives that should benefit many UK companies as well as encouraging multinationals to invest in the UK. However, since the Public Accounts Committee’s reports into tax avoidance, there is keen media interest in taxation and I worry this might undo the government’s good work in creating a more competitive tax system.

Even where schemes aimed at generating growth have been legislated for, and backed, companies are becoming reluctant to use them, fearing public vilification for paying less tax. For example, Npower faced criticism for admitting to the Energy and Climate Change Committee it had not paid corporation tax as it was claiming capital allowances for a major investment in infrastructure.

An environment where a business can face scorn for claiming tax reliefs, to which it is entitled, arguably risks discouraging the uptake of government incentives related to the tax system, which may ultimately impact future growth and development.

Jonathan Riley, senior tax partner, Grant Thornton UK LLP