The corporation tax rate for smaller UK companies is to rise even though the tax is being reduced for large corporations. The SME rate will rise from 19 to 20 per cent from April 2007.

The tax rate will also increase to 21 per cent the following year and to 22 per cent by 2009/10.

 The increase is partly intended to deter the self-employed or consultants from incorporating to benefit from the lower tax rate, but in fact, with the basic rate of income tax reduced from 22p to 20p from 2008, companies will be taxed more heavily than standard rate personal taxpayers.

The changes, announced in the 2007 budget, apply to companies with profits of less than £1.5m.

Increased tax allowances on research and development by smaller companies will offset some of the tax increase, but only for those businesses that reinvest profits rather than withdraw cash. The temporary 50 per cent rate of first-year allowances for smaller companies will be extended for another 12 months to 2008 and there will, be a new allowance for the first £50,000 of spending on plant and machinery from 2008. The rate of writing down allowances will be cut from 25 to 20 per cent from 2008 however.

Support available under the SME relief scheme on R&D will be extended to companies with fewer than 500 employees from a date that has yet to be set. While the rate of relief for large companies will increase to 130 per cent of R&D expenditure, the rate for SMEs will rise from 150 to 175 per cent. The value of the payment credit will remain broadly at its current rate – 24 per cent of qualifying expenditure. European Commission approval is necessary for the changes.

The CBI calculates that raising the R&D tax credit rate will reduce smaller companies’ R&D costs by 15 per cent. The Federation of Smaller Businesses accused the government of subsidising the corporation tax cuts for large companies by the rise in the rate for smaller firms.

VAT thresholds are rising from £61,000 to £64,000 for April 2007. The deregulation threshold increases from £59,000 to £62,000. For more information please visit www.hmrc.gov.uk
 

Share this: digg   del.ico.us   Newsvine   Reddit   Furl   technorati   Facebook

Comments (0)

Subscribe to this comment's feed

Name (required)

Email (required) (not published)

Website

Title

POST

By posting on this website you are agreeing to abide by our website comment policy and all posts are subject to the approval of the website editor. We will remove posts that contain offensive or threatening language, personal attacks on the writer or other posters, posts that are off topic and posts that are considered spam or specifically used to promote any commercial products or services. Any poster who repeatedly contravenes the policy will be banned from posting on the website.