PBR: Thousands of small companies hit, says PKF

Thousands of small companies face an extra tax bill of up to £1,900 a year
because of the removal of the nil starting band of corporation tax, according to

Peter Penneycard, national director of tax at PKF, said: ‘This is a direct
reversal of Gordon Brown’s own policy, first introduced in April 2000. It seems
that too many entrepreneurs took up this incentive and even the introduction of
the horribly complex Non-Corporate Distribution Rate of Corporation tax in 2002
did not control the cost to the Treasury.

‘At least by taking away this incentive the chancellor has allowed the tax
rules to return to the straightforward situation that applied before he

In a parallel announcement, the chancellor reintroduced the enhanced the 50%
first year allowance for small business investment in plant and machinery made
in the period 1 April 2006 to 31 March 2007.

Peter Penneycard added: ‘This is another about turn from the chancellor – the
50% first year allowances only ceased on 1 April 2005. Such back and forth
changes with the tax system hardly live up to the chancellor’s claim of
providing stability for business.’

The announcement that the government will consider the recommendations of Sir
George Cox’s ‘Review of Creativity in Business’ could eventually be good news
for UK businesses. The development of new support agencies is welcome but the
Chancellor seems to have side-stepped the review’s main recommendations on
enhancing the Research & Development tax credit.

The pre-Budget report says that some of the specific R&D recommendations
will be accepted but it might prove too expensive to adopt the full OECD
definition of R&D.

Peter Penneycard said: ‘Thousands more businesses would benefit from the R
&D tax incentives if the scope of qualifying work is expanded.’

In response to the Barker Review of Housing Supply, the chancellor has issued
a consultation paper proposing a ‘Planning Gain Supplement’. As proposed, this
‘tax’ would be based on the increase in land values resulting from the granting
of planning permissions. It would be payable by developers at the commencement
of development.

To the extent that it reduces the price paid by developers, it will
effectively be borne by landowners but it will reduce the capital gains on which
they pay tax. The government states that there are no plans to adjust IHT, VAT,
SDTL nor any other taxes based on land values.

Peter Penneycard said: ‘This new tax will not take effect until 2008 and its
effect on the property market will be hard to predict until specific proposals
and the relative tax rates for green-field and brown-field sites are known.’

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