Britain's status as a competitive tax regime is under pressure as rival economies ease tax burdens for businesses, a report says today.
The UK has slipped from 11th place in 2006 to 18th this year in the latest "Paying Taxes" rankings, published by PwC, the World Bank and International Finance Corp. Last year Britain was in 16th spot.
The rankings rate tax regimes for the number of payments required of companies and the time required to comply with rules as well as the total tax rate for a case-study firm.
Britain's results are the same as last year and are better than average on all three counts, but 33 other countries have improved their attractiveness to small and medium enterprises (SMEs), threatening the UK's relatively strong position, the report said.
Globally, the total tax rate for SMEs has fallen 8.5 per cent since 2006 to 44.8 per cent, compared with 37.3 per cent in the UK.
Time spent complying with taxes is 110 hours in Britain, compared with a 227-hour global average, but 54 hours have been knocked off the worldwide figure. The number of payments required in the UK is eight, compared with 28.5 globally, but that figure has fallen by 4.7 in a year.
Changes in the last five years globally include 133 major reductions in corporate income tax as well as increasing adoption of online registration and payment and a single tax base.
Emerging markets and Asian low-cost centres above Britain include the Maldives at number one, Hong Kong in third place and Singapore fourth. But the UK also lags behind developed nations such as Luxembourg, Canada and Ireland. The UK still outranks other mature economies such as the US, France and Germany, which do not make the top 30.
The Chancellor announced last year that he would reduce corporation tax from 28 per cent to 24 per cent over four years. But he also cut capital allowances, whereas Luxembourg has generous allowances that make its total tax rate more competitive.
Neville Howlett, external affairs director for tax at PwC, said: "While we still do well, the signs are that others are moving more quickly than we are. We need to be up at the top to make sure we keep attracting investment."
He added that more tax changes are working through the system that could improve the UK's ranking next year.
The Government is trying to encourage businesses to set up in Britain after decades of over-reliance on the financial services industry to generate taxes and jobs. However, it has to balance short-term reductions to the tax take with the longer-term aim of boosting entrepreneurship.
Mary Monfries, a tax partner at PwC, said Britain did not have specific industries or resources to attract investment and that the general tax and business regime was therefore important for luring companies.
"Our tax regime needs to stand out from the crowd when it's an important factor for businesses choosing where to locate. Given the shift from west to east, we can't afford to have the likes of Hong Kong and Singapore in third and fourth position with us moving towards 20th."