Jessica Fino 12 Jan 2018 08:51am

UK companies to benefit from US tax rate cut

The incoming US tax reform package, which includes slashing the corporation rate, is set to benefit a number of large UK businesses

British American Tobacco (BAT), the London Stock Exchange Group (LSEG) Bunzl, Weir Group and 4imprint all issued statements this week outlining the impact of the US tax cuts unveiled in December.

The tax reforms were proposed in early December and agreed by the Republican party later that month, with the compromise of setting the corporate tax rate at 21% instead of 20% as Donald Trump suggested.

BAT predicted that the tax reforms would result in a benefit of 6% in its 2018 earnings per share value.

“For the year to 31 December 2018 we currently anticipate that the changes will reduce the group's effective tax rate percentage to the high-twenties,” it added, instead of the previously expected 30%.

Additionally, marketer 4imprint announced that the lower US corporate tax rate would have a beneficial impact on earnings per share calculations.

However, the LSEG noted that while the bill reduces the US corporate tax rate payable on US earnings, “it also eliminates or reduces some tax deductions currently available”.

It added that it did not expect the reform to have any material impact on the group, “in part due to the manner in which US acquisitions are financed and also due to the introduction of a new base erosion anti-abuse tax which will apply to payments for services provided to our US operations by the wider group.”

Distribution and outsourcing company Bunzl also said the changes would not have any material impact on its 2017 financial results, but acknowledged that they would reduce the its effective tax rate for the financial year of 2018 to 24%.

Moreover, the engineering group Weir said the changes would likely give rise to an initial one-off non-cash tax credit in 2017, as a result of the revaluation of its deferred tax assets (DTAs) and liabilities in the US following the tax cut.

However, any favourable impact that the tax cut could have in the company would likely be offset by the greater restriction on the level of interest deduction allowed in the US. Weir estimated that its effective tax rate will be around 25% in 2018.

Several banks, on the other hand, have warned they will post losses in 2017 due to the changes. Deutsche Bank said this month that it would post its third consecutive loss in 2017, driven by the reduced value of its US DTAs which would result in a €1.5bn (£1.3bn) charge.

Morgan Stanley will also be hit by a $1.25bn (£0.9bn) charge due to the reforms.

Other measures in the tax bill are cuts for the wealthy, with the top income tax rate being decreased to 37% from 39.6% for those earning more than $500,000 (£371,825) a year.