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Budget 2011: Corporation tax

Chancellor George Osborne has announced changes to the corporation tax regime in his Budget. How will the changes affect entrepreneurs?

The short version:

Corporation tax will be cut by two percentage points (not one percentage point as expected) this year, followed by one percentage point for the next three years. Currently, corporation tax is at 28 per cent, but it will become the lowest in the G7 in three years’ time.

From the horse’s mouth:

Chancellor George Osborne said: “I want Britain to be the place international businesses go to, not the place they leave. So I can today announce that from April this year, corporation tax will be reduced not just by one per cent as I previously announced, but by two per cent. And it will continue to fall by one per cent in each of the following three years taking our corporate tax rate right down to 23 per cent.

“Let it be heard clearly around the world from Shanghai to Seattle, and from Stuttgart to Sao Paolo: Britain is open for business. And to ensure that this is not a net tax cut for banks, I am adjusting the bank levy rate next year to offset its effect. In each and every year of this Parliament, our permanent bank levy raises more than the one-year bonus tax of the last Parliament.”

Our verdict:

Cutting corporation tax by two percentage points this year is another good move by Chancellor George Osborne. He had already announced last June that he would cut the corporation tax rate to 24 per cent within four years, so knocking off an extra percentage point is a bonus for entrepreneurs.

Once it has reached 23 per cent, the UK’s corporation tax rate will be 16 per cent lower than America, 11 per cent lower than France and seven per cent lower than Germany the lowest corporation tax rate in the G7.

The appeal is clear: it makes Britain a more competitive place for businesses to be based.

Your verdict:

Nicko Williams, owner of Climatecars: “Overall, the budget seems positive. It seems Osborne is signalling to the world that the UK is going to be a more competitive place to do business. The corporation tax cut is a good thing, as it encourages enterprise, and most importantly, profit.”

Paul Lindley, founder of Ella’s Kitchen: “This was a disappointing budget for high-growth businesses. While the extra one per cent reduction in corporation tax is welcome, it will not have a large or immediate impact on SMEs. There was an absence of specific measures on encouraging investment in SMEs, on business funding, and on incentives for exporters. This was always going to e a budget where the Chancellor’s hands were tied. Fast-growing businesses will be disappointed but not surprised.

Tony Medcalf, tax partner at Moore and Smalley Chartered Accountants: “In theory, the reduction in corporation tax by two per cent, instead of the one per cent previously announced, will leave businesses with more money to invest in jobs and equipment, though this will be paid for by an extra levy on banks.”


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