PBR 2008: One small step for small business. By Simon Sweetman

Am I the only one who thinks that *lower* corporation tax is mildly insane?

It discourages growth and particularly discourages amalgamation.

It discourages investment - since it reduces the benefit of tax relief.

And of course it discourages salary payments in favour of excessive dividends.

I would have thought that if you have a policy of wanting small companies to expand and grow the best thing you can do is reduce the corporation tax for larger companies. Give small companies something to aim at.

Why not go for a 50% corporation tax rate on small companies profits, reducing progressively as you get above £300k profit down to the standard corporation tax rate when you hit medium size. Allow small companies full write off in the year of expenditure.

And for those that don't want to grow, give them the option to tax members as though they were a partnership - just like an LLP.

NeilW

Although there weren't especially firm details in the PBR itself, one of the most important efforts from the government is to maximise the availability of credit - through the EIB and SFLG schemes. I have written about the effects of this here.

As Simon suggests, the businesses which will be helped particularly by the corporation tax cut are not the ones that need it most. A 2.5% VAT reduction does help non-registered businesses a bit.

But as he points out, the real effect is psychological. Behavioural economics tells us a lot about this, and the biggest question to ask of it is: will the tax cut be saved or spent? The answer (maybe) is here...

"consider that most small companies do not pay CT, or pay very little, because they need to withdraw most of their profits as salary"

Am I missing something? Not a single one of my companies pay salaries over and above the personal allowance.

The new business payments plan seems to be immediately in effect. One of my clients has already taken advantage of this to settle their corporation tax in instalments. All done over the phone in a single call.

here.

Familiarisation costs: £7 to £100
Re-pricing costs: £25 to £600
Extra bookkeeping checks: £13 to £450
Extra accountancy fees: £25 to £250
System changes/upgrades: £13 to £325

The spread is from small businesses to large businesses. I am not sure whose figure is more wildly inaccurate!

I haven't seen anyone comment on this, so here I'll do provide my observations.

Perhaps the biggest beneficiaries of the VAT rate cut will be the Banks and Insurance companies who must be looking forward to many millions of pounds saving in non-recoverable VAT as they are partially exempt.

As for costs of the change in VAT rate cut I've noted some rather optimistic estimates of how low the costs of change will be...

£7 for a small business in their staff costs
£25 for a small business to buy-in 1 hour of accountancy practice costs
£10 for software upgrades / changes

Oh, a big businesses - upto £550 I think is quoted.

As the impact assessment admits the cost impact is disproprtionatly lower for big businesses.