Mr. Brown finally bowed to the entreaties of the business community and reduced the main rate of corporation tax from 30% to 28% on profits in excess of £1.5 million as of April 2008.
The Chancellor also increased the small companies’ rate (on profits below £300,000) from 19% to 20%, rising in stages to 22% in April 2009. To offset the increase in taxation for small businesses, Mr. Brown has introduced a one year extension of the first year capital allowance of 50% for small companies and announced the subsequent introduction of 100% relief for capital expenditure up to £50,000 on general plant and machinery, starting April 2008.
Marcel Grech-Marguerat, Tax Principal at MacIntyre Hudson, comments:
“The bill for this reduction in Corporation Tax, however, is being footed by small businesses, which don’t have the same option of relocating to friendlier climes and face a 3% increase in tax on profits below £300,000 over the next two years. Little Peter is paying for big Paul. “Mr. Brown’s tinkering with capital allowances is supposed to combat this increase but the devil is in the detail. Some small businesses will fall into the net of paying the 22% Corporation Tax rate and not even qualify for the additional relief on capital expenditure. Not to mention the fact that the extra corporation tax is permanent, and any capital allowances are either temporary, not yet in place or unavailable for some companies. The Chancellor’s swansong does not play well on the ears of small business.”
