Tax breaks for foreign branches
UK architecture practices could benefit from UK tax exemption on work completed by foreign branches as a result of government plans to lift the UK tax burden on overseas income
The proposal is set to go before parliament next month. The fiscal reform means that any foreign branch of a UK practice could opt in to the programme and avoid paying UK tax on work abroad, as long as the project was executed within the foreign branch – benefits previously available only to subsidiaries.
Foreign branches currently have to pay their full UK tax minus any tax paid to the country in which the income originated.
Directors of the UK’s largest architectural practices have greeted the announcement with open arms, claiming the policy would boost the profession’s competitive edge abroad.
Benoy chair Graham Cartledge said the reform would give his company a ‘healthier bottom line’, allowing increased investment in staff standards and research and development across its six international offices. He said: ‘In a highly-competitive global marketplace, more favourable taxation allows companies to be more competitive.’
Chris Littlemore, chief executive of Archial – which was bought by Canadian company Ingenium four months ago – said the international operational structure was ‘the way forward for the profession’. He said: ‘[Any] reforms that can encourage the internationalisation of UK-based architects [could] help facilitate recovery at a time when such assistance is needed most.’
Aukett Fitzroy Robinson chief executive, Nicholas Thompson, also welcomed the reform but warned that it could backfire for some practices. He said: ‘[If] the practice makes the [tax] election and the branch makes a loss (which is very common in start ups) then the losses can’t be offset against UK profits as they formerly could have been.’
Jo Wright, managing director at Feilden Clegg Bradley Studios, however, criticised the decision, describing it as a ‘Tory ploy’. Wright said the reform would only benefit the ‘behemoth practices such as Atkins, Capita and Aecom’.
John Clemow, chief executive at YRM
UK architects are respected and welcomed internationally for our design and management skills. Realising a project internationally can be strengthened with an in-country presence which should also generate work in the UK firm. The tax breaks should be extended to SME’s which would sweep up most practices in the UK.
Peter Morrison, chief executive at RMJM
This is a positive move which will be of significant benefit to those taking their first risky steps overseas. The economic challenges in the UK are undoubtedly encouraging more British practices to seek to export their talents to clients abroad and the government removing barriers in this way is to be welcomed.
Mark Taylor, 3DReid chief executive
Like many in our profession, the last few years have been an incredible challenge and any initiative which helps alleviate some of the strains on running a business and ultimately delivering architecture, is welcome. Certainly the domestic market will not deliver the scale of opportunities we would like to see over the next few years, so encouraging exporting in this way is a positive step from the Coalition. We already have offices in the UAE and Malaysia, with potential for expansion into Central Asia, and we expect a large increase in our fees to be earned outside the UK. This tax break will further assist us in exporting our services overseas and help us to sustain continued investment in existing and potential new markets. However, conversely many businesses who are too small or cannot afford to open offices abroad may not see the benefits and will be reluctant to invest in the same way.
Patrick Reardon, executive chairman at ReardonSmith Architects
I find it difficult to believe that the proposed change to existing tax legislation will be of any significant benefit to the vast majority of architectural practices that are small- to medium-sized companies. Whilst there will be some new tax advantage in setting up an overseas branch office, doing so is a complicated, time-consuming and relatively costly process and, unlike the conglomerates, SMEs can’t afford to employ the international tax experts and lawyers necessary to ensure they extract every last benefit from the venture. At this time, I would think most architectural firms are simply focused on bringing the right quality of business into their company, whether that is located in Manchester or Marrakech, and they would prefer to handle the work from an existing office. As it happens, we established our first branch office at the beginning of this year, in Cape Town, but our incentive to do this was absolutely nothing to do with the forthcoming tax change. Extending into overseas markets carries risk and, frankly, if government legislation can off-set this a little, I think that’s a good thing.
Lee Polisano, PLP Architecture
This is a good and smart move by the Government and will make us more competitive. It will enable businesses to expand and, since most of the work is carried out in the UK, to create more jobs. Income from tax will then be generated when the money is repatriated into the UK.
James Langford of James Langford Architects
If small businesses are exempt from the tax benefit, it seems a real shame, particularly as they’re likely to need the help the most! If it did happen, one possible outcome could be that eligible larger UK architectural practices with overseas work and offices, will be tempted to potentially downsize their practices over here and maximise their operations abroad, having significant implications for architects in the UK.
Jane Kennedy,chair of Purcell Miller Tritton
We would say that the tax situation is the very last thing that we (and I suspect everyone like us) think about in this situation. We are there because the work is interesting and challenging and because we feel we have something to add (to the development work going on in Hong Kong and Conservation work in particular in our case).
Jack Pringle, Pringle Brandon partner
Setting up in a foreign country is an expensive and risky business. Finding premises, negotiating local laws, getting staff than can work locally but deliver the service and design quality one expects are all difficult. And of course there is marketing in a foreign land, winning commissions and ultimately achieving payment – often in a very different commercial culture. So the ‘barriers to entry’ are high. But the British have always been traders and we need to encourage as much overseas activity as possible. So, anything that can enhance the risk / reward ratio will encourage UK architects to expand abroad and ultimately we should have more successful firms. Good for the firms, but also good for UK PLC.