Rishi Sunak’s plan to adopt a minimum corporate tax rate will damage Britain’s competitiveness and leave the country drowning in red tape and extra costs, a think tank has warned.
The Legatum Institute urged the Prime Minister not to cede control of the key business tax, following a global agreement to implement a 15pc minimum levy on multinational companies.
The report, authored by Liz Truss’s former chief economic adviser Matthew Sinclair and due to be released on Monday, urges Mr Sunak to use Brexit freedoms to reject the global minimum facilitated by the OECD and “reassert UK sovereignty over tax policy”.
More than 130 countries, including the US, UK and the rest of the G7 signed a landmark deal in 2021 to tackle tax abuses by some of the world’s biggest companies and establish a minimum global corporate tax rate for the first time.
Joe Biden had sought a 21pc minimum, but the US president agreed to reduce this to 15pc for companies with annual revenue of at least $750m (£615m) to secure an agreement with more countries.
The Institute highlighted that the UK had signed up to the agreement without a debate or vote in Parliament, branding the OECD minimum “a bad idea in principle and an unwelcome departure from a longstanding, bipartisan commitment to maintain the UK’s sovereignty over its tax affairs”.
It warned that the UK’s decision to implement the policy faster than other nations would create “unnecessary” additional costs, leave the UK at a competitive disadvantage and prevent future governments from slashing taxes.
Rejecting a corporate tax floor would ensure policymakers could determine the “right corporation tax for the UK”, Mr Sinclair said.
The Institute said officials had also “materially underestimate[d] the cost of implementation” for businesses, warning many would be left drowning in compliance costs.
HMRC has estimated that complying with the new minimum tax would cost businesses £13.2m up-front costs and £8.2m in annual costs on average. Money would go towards updating software, retraining staff and other administrative expenses.
Mr Sinclair said: “It is vital that future governments have the flexibility to set taxes in a way that reflects the UK’s changing economic needs and longstanding concerns about how corporation tax distorts business decisions.
“Implementing the OECD minimum tax early will only magnify the risks and the enormous costs of compliance to UK multinationals, while failing to deliver the revenue the Treasury is after.”
The OECD’s minimum tax plan has also been met by fierce opposition by Republicans in Congress and has led to speculation that Donald Trump will row back on America’s commitment to the policy if he wins the presidency in 2024.