Simplified corporation tax welcome, says CIoT

THE CHANCELLOR’S ALTERATIONS to corporate taxes will allow businesses to operate their affairs more smoothly, according to the CIoT.

In particular, the “harmonisation” of the main rate and the small profits rate at 20% is likely to see less planning of profits, while the drop in headline rate by a percentage point will improve the UK’s image abroad, the institute said.

Currently, profits realised between £300,000 and £1.5m are charged at a higher rate of 23%, provided those profits are not ringfenced.

The changes, announced in last month’s Budget, will come into force from April 2014.

CIoT deputy president Stephen Coleclough said: “The reduction in the main rate of corporation tax to 20% in April 2015 is obviously good news for larger businesses and for the image abroad of the UK’s tax system.

“It also has an important simplification benefit as the main rate and the small profits rate will be harmonised at 20%. There will no longer be a need for many medium-sized companies to spend time planning their affairs to minimise profits between £300,000 and £1.5m, which are currently taxed at a third, higher marginal rate. There will be no incentive for companies to, sometimes artificially, keep profits to under £300,000.

“The economic justification for having a lower rate for smaller companies has been wafer thin. Simplifying the system in this way has got to be good for business and good for the economy.”