Corporation Tax and the Budget 2011

Tax Comments Off on Corporation Tax and the Budget 2011

George Osborne made much of his intended reductions in corporation tax from 1 April 2011.

They are:

1 April 2011 – 2% fall from 28% to 26%

1 April 2012 – further 1% drop to 25%

1 April 2013 – further 1% drop to 24%

1 April 2014 – further 1% drop to 23%

The small profits rate of corporation tax is dropping on 1 April 2011 – from 21% to 20%. But that’s it. There are no further announced decreases in the small profits rate. Further, this low rate only applies to companies with no associated businesses, whose taxable profits do not exceed £300,000.

Which begs the question, what happens to companies with profits that exceed £300,000 but do not exceed £1.5m?

Companies whose profits fall into this band are taxed at the marginal rate. From 1 April 2011 the marginal rate is 27.5%!

Smaller companies should therefore look at their affairs if their profits are projected to exceed £300,000 in the tax year 2011-12 and the subsequent tax years. Any legitimate expenditure that you add to your 2011-12 budget, that keeps your taxable profits below £300,000, is effectively saving you 27.5% corporation tax; not a bad discount.

Please do call me or my colleague John Elliott if you have any company related tax queries.

Peter Taaffe

Managing Partner