Tax experts and small businesses welcomed the suggestion of a further cut in the 20% corporation tax rate for small companies, foreshadowed by the chancellor in his Green Budget statement on Tuesday.
But a move to make 40% first-year capital allowances for small companies a permanent feature of the tax regime was viewed as being of limited benefit and of little encouragement to investment.
Gordon Brown hinted at both measures in his speech, saying he wanted to encourage the growth of small businesses.
The small companies tax rate – which applies to companies with profits under #0.5m – has been reduced twice in the last 18 months to its lowest ever level.
Ian Stewart, tax marketing partner at KPMG, said small and medium-sized enterprises would be in favour of a further cut, but a small reduction would do little to make up for the dramatic impact corporation tax self-assessment is likely to have on them.
Stewart also said that making the 40% first-year capital allowances for small companies permanent would not have much of an impact.
Bill Dodwell, a tax partner with Arthur Andersen, said it might prevent small companies bringing expenditure forward for tax reasons but would be of little overall cash benefit.
The Federation of Small Businesses said it welcomed the extension of investment allowances.
Any tax arising from Lord Marshall’s report on energy pollution, released at the same time as the chancellor’s speech, will take some time to materialise, say tax experts.
Marshall’s report acknowledged this was a ‘very complex’ area. He recommended there should be some form of tax on final use of energy by industrial and commercial consumers, with rates reflecting a fuel’s carbon content.
Tony Lynne, tax partner at KPMG, warned of ‘huge issues and practicalities’, while Dodwell questioned the will to introduce an extra manufacturing cost in the current climate.
SME corporation tax cut foreshadowed
New tax credits for R&D by SMEs
Merged Inland Revenue and Contributions Agency to offer payroll help to SMEs Employers’ threshold for NICs and basic personal tax allowance to be aligned at #83 a week (#4,335 a year) from April 1999
Review of policy to encourage wider employee share ownership
Review of banking sector to ensure it supports business better
Review of ‘possible tax options’ to encourage serial investments in SMEs
Tax relief for companies seconding staff to schools and colleges
Incentives promised to promote investment by large companies in SMEs
40% first-year capital allowance for SMEs to be made permanent
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