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Reductions in Corporate Tax rates

The coalition government have for some while stressed the need to make the “UK PLC” tax regime more competitive and as Mr Osborne said in his speech it “is open for business”.

There are to be consultations on a number of corporation tax issues to attempt to persuade businesses to come to the UK. However, possibly the biggest incentive in the budget is the cut in corporation tax over the next four years. Currently, the top rate of tax is 28% but this will fall by 1% per year down to 24% by 1 April 2014.

For those companies that make profits of less than £300,000 per annum, the rate will fall by 1% to 20% from 1 April 2011, but there has been no indication of further reductions to this rate in later years. It is important to remember that the limit of £300,000 is reduced by the number of associated companies.

There are potentially benefits to be obtained by unincorporated businesses or partnerships if they are able to incorporate part of their business and retain profits within the company at only 24% rather than potentially having the profits taxed at what could be the top rate of income tax at 50%.

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