Significant changes to corporation tax rates are proposed, the main rate is to be reduced from 28% to 24% by 1 April 2014 by way of annual 1% reductions. Oil profits (ring fence) remain at 30%.
The main rate applies to profits above the upper limit of £1.5 million. Companies subject to the small companies rate are to benefit from a 20% rate (profits less than £300,000) from 1 April 2011 (previously announced to be 22%). Oil profits remain subject to the same rate, at 19%.
This represents a significant shift. By 2014 the differential should be such that an equalisation of rates between small and large companies is a real possibility.
But these reductions need to be considered in a wider context. The true tax burden is a function of rates and calculation, the Budget makes it clear that profits for tax are set to increase by reference to capital allowance rule changes:
1. Capital allowances – from April 2012 writing down allowances will be reduced, from 20% to 18% for main pool expenditure (in other words general plant and machinery) and from 10% to 8% for special rate pool expenditure (such as long life assets, but also integral features and certain cars).
2. Annual investment allowance – this is to be reduced from the current limit of £100,000 to £25,000. This also takes effect from April 2012.
There is no general anti-avoidance rule (a Lib Dem favourite) but its introduction is to be examined.