Budget 2011: Tax to drop to 23% by 2014

UK corporation tax will drop to 23% by 2014 as it aims to make the UK more competitive with other regimes, according to the 2011 Budget.

Following an initial 2% cut this April to 26% from 28%, there will be subsequent 1% cuts in 2012, 2013 and 2014.

According to the Budget, the corporation tax cuts are designed to promote higher levels of business investment and help the UK to maintain the “lowest rate in the G7”.

In addition, the government also plans to introduce an opt-in exemption from corporation tax on the profits of foreign branches of UK companies in Finance Bill 2011. With this, the government aims to help make the UK a more competitive location for international businesses.

To further boost UK groups’ ability to compete with overseas firms, the government also plans to introduce new controlled foreign company (CFC) rules as part of its Finance Bill 2012. It will publish a consultation document in May 2011, and will follow this up with draft legislation in autumn 2011.

“This will be preceded by interim improvements to the current CFC rules in Finance Bill 2011 for accounting periods beginning on or after 1 January 2011 to make the rules easier to operate ahead of full reform,” the Budget document said.

The government expects to receive £48bn in corporation tax in 2011/2012.