Corporation tax – the principal UK tax on companies – has been through two major reforms in the last 25 years, one in 1984 and the second since Labour came to power in 1997. In 1984, the main corporation tax rate was cut from 52% to 35% (reduced to 33% by 1991–92), and a very generous system of deductions for capital investment (100% first-year allowances for investment in plant and machinery) was replaced by a less generous one (25% annual writing-down allowances). The 1984 reform was intended to be broadly revenue-neutral, but may possibly have raised extra revenue by increasing the number of taxpaying companies more than expected. The incoming Labour government of 1997 changed the way that dividend income was taxed, no longer allowing certain tax-exempt shareholders, such as pension funds and other companies, to reclaim the value of their dividend tax credit. This was followed in 1999 with a reform of the system for corporation tax payments (see Section 3.6). Since coming to power, the Labour government has also cut the main corporation tax rate from 33% to 30% and the small companies’ rate from 24% to 19%. In April 2000, a 10% lower rate was introduced for companies with less than £10,000 of taxable profits, and this lower rate was cut to zero in April 2002. This last tax cut came as a surprise, with costs potentially running into billions of pounds if selfemployed individuals register as companies to reduce their tax liabilities.The other substantial company tax in the UK system is business rates. Prior to the local government tax reforms introduced in 1990, business rates were under the control of local authorities. Since 1990, they have been set at the national level: business rates are no longer a local tax in any meaningful sense, and it is now more obvious that they are a slightly surprising tax. Business rates are effectively an intermediate tax that bears heavily on productive activities that are property-intensive. As such, they seem ripe for the reformer’s attention, or at least they would be if they attracted more public interest.…
