Out-Law News 1 min. read
21 Mar 2012, 3:31 pm
George Osborne also announced that the rate will be reduced to 23% from April 2013 and then 22% from April 2014. Following the increase "the UK will have the lowest main corporation tax rate in the G7 and the fourth lowest in the G20," according to the Budget Report (114-page / 707KB PDF).
The rate of corporation tax is currently 26%. This had been scheduled to reduce to 25% from 1 April 2012 and then to 24% from 1 April 2012
The reduced corporation tax rate will benefit incorporated businesses with profits above £1.5 million which pay tax at the main rate and those with profits between £300,000 and £1.5 million, which pay tax at the main rate reduced by marginal relief.
Companies with profits of less than £300,000 pay corporation tax at the small companies' rate. This rate remains unchanged at 20%.
"The reductions in the rate of corporation tax are good news for companies that are making profits and a 22% rate of corporation tax by 2012 makes the UK look an attractive place to do business", said Eloise Walker, a tax expert at Pinsent Masons, the law firm behind Out-Law.com.
"However, the previously announced reductions in the rate were to be funded by cuts in the rates of capital allowances. From April 2012 rates of capital allowances are going down to 18% for main pool expenditure and 8% for special rate pool expenditure so not every business will be better off as a result of the reduction in the corporation tax rate. We will also need to wait and see what, if anything, happens with regard to ongoing EU discussions regarding a common corporate tax base," said Walker.
The June Budget 2010 announced four annual one per cent drops in the main corporation tax rate from 28 per cent for the financial year beginning April 2010 to 24 per cent for the financial year beginning April 2014.
The March 2011 Budget announced the main rate for the financial year beginning April 2011 would instead drop by 2 per cent to 26 per cent to be followed by three further one per cent cuts to 23 per cent by the financial year beginning April 2014.