Is Britain business friendly?

 Starmer, in order to deflect news from his disastrous scrapping of pensioner winter fuel allowances,  claims Britain is business friendly and a great place for inward investment of foreign capital.

Just how true is his claim?

Let's start with corporation tax since it's highly likely a foreign investor would form a company if they wanted to create a business in the UK.

The headline rate of UK corporation tax is 19% provided profits are less than £50,000.   The next headline rate is 25% tax if the company makes a profit of greater than £250,000.  Now the band in the middle does not have a headline rate - it's referred to as tapered relief.  The reality is the marginal rate of taxation in this band is a punitive 26.5% tax rate.   The average corporation tax rate across 181 countries world wide is 23.45% so Britain is actually a high tax country if the company makes a reasonable profit.  Contrast the UK's rate with that with the average corporation tax rate for  EU member of 21.13%.

These tax bands were not introduced by Starmer but by the equally business unfriendly conservatives.

Taxation is not the only consideration. Ease of setting up a business is another factor.  Here the UK scores well.  It's pretty easy and low cost to set up a business.  It can literally be done in minutes.

Let's compare these taxation rates with some popular alternative countries.

Ireland

Our nearest neighbour with a land boarder is Ireland. Their corporation tax rate is 12.5% and if your income is from non trading activities eg shares etc then the rate is 25%.  On the whole that looks way better than the UK.  They speak our language and it's pretty easy to set up a company in Ireland - I'd say almost on par with the UK.

Setting up a business bank account is also pretty straight forward with companies like Revolut being options.

United Arab Emirates (Dubai)

One attraction of setting up a business in Dubai  is low corporation tax - just 9%.  However that's pretty much where is ends.  Setting up a business in UAE is a complex process.  You  will need legally certified documents (translated into Arabic) and it's certainly not as quick as the UK.

Estonia 

A major attraction of setting up a business in Estonia is their treatment of tax.  If you are planning to plough profits back into the company to grow it then Estonia should definitely be considered.  Corporation tax is only payable when profits are taken out of the company as dividends and are then taxed at a competitive rate of 20%.  If you leave the money in the company and re-invest it then there's no tax to pay - ever.  However setting up a business in Estonia can be slow and time consuming. You'll need an  e-Residency digital ID card which can take potentially 5 weeks to obtain.  If you already have one then setting up a business can be the same day. Cost is higher than setting up in the UK at around £350 but the upfront cost could be negligible given the tax benefits in the longer term.

Hungary

Hungary has a very competitive corporation tax rate of 9% however employment costs in Hungary are high.  15% salary tax, 13% employer social tax, VAT of 27%.  Setting up costs are fairly high - likely to be in the range of EU 400  - 2500. However there's a well educated workforce - particularly in technology and English is widely spoken.

Singapore

Singapore is a very  business friendly location.  Corporation tax rates are 17%. There are partial tax exemptions for 3 years for qualifying start-ups.  English is an official language and pretty much the de facto main language.   Set up costs are low at about £200 and can be the same day if the paperwork is in order. If you're a Singapore citizen with a SingPass it's easy to set up a company bank account else it's going to be a much longer process.  On the down side, Singapore is well known for rules, regulations and fines.  Make sure you don't fall foul of the Singapore authorities or expect some hefty fines.

So is Starmer right?  Well Britain remains probably in the top 10 of best places to start a business in world.  It can take months if not years to set up in France.  Although the French incorporation process is considered straightforward, you will need expert advise to follow all the local regulations for example publishing a notice of your intent  to establish the company, provide evidence of qualifications eg master's degree, if you are not a French national - then recognition of your idea by a public sector body or organisation. 

So Britain is the top 10 best place to START a business but it is definitely not in the top 10 of places to RUN a business long term.  Looking at the whole world then the UK is probably the easiest, least bureaucratic  place to form a company  - and it's very low cost. However looking at the whole life of the company then corporation tax has to be factored in and it's clear there are significantly better options than the UK. Ireland or Jersey are definite options to consider as tax efficient options with comparable rule of law to the UK, respect for assets etc and comparable ease of setting up a business at low cost.

So why set-up in the UK?  If you're a global giant like Amazon, the UK is a great option.  Amazon hasn't paid any corporation tax despite making a £222M profit in 2022.  The government gives it generous tax credits. Amazon UK Services received tax credit of £7.7m for investment in infrastructure under Rishi Sunak’s super-deduction scheme.  With a turnover of around £6.56bn, their decision to be in the UK is great for them.

It will be interesting to see if Starmer in the Autumn budget makes Britain less business friendly. Clearly it is losing it's edge compared to the global alternatives.