Budget: Corporation tax cuts outlined

Image caption,
Retailers fear the rise in VAT will mean consumers will spend less

The main rate of corporation tax will be cut from 28% to 24% over the next four years, the Chancellor, George Osborne, has announced.

Corporation tax will be cut from 28% to 27% next year, and by 1% annually for the following three years.

The rate for small companies will also be cut from 21% to 20%.

Businesses welcomed the lowering of these tax rates but expressed concern over other measures, including the rise in the main rate of VAT to 20%.

The rise in VAT is due to start from 4 January 2011.

Mixed reaction

Reform of the corporate tax regime "will help rebalance the economy away from household debt and government consumption", Mr Osborne said.

He also revealed plans to reduce the Annual Investment Allowance from £100,000 to £25,000 from April 2012.

This would still allow more than 95% of businesses to have all their annual investment covered by the allowance, the government believes.

The threshold at which employers start to pay National Insurance will rise by £21 a week above indexation from April, the chancellor said.

Richard Lambert, director general of the CBI, said: "There was clear recognition in the Budget of the role that business needs to play in getting the economy back into shape, and generating the jobs and wealth needed to sustain economic recovery."

David Frost, director general of the British Chambers of Commerce, said: "We believe that the government's decisive moves to cut the deficit will have positive effects on business and investor confidence.

"Even more importantly, the chancellor's message that Britain is 'open for business' will be welcomed by companies the length and breadth of the country - and across the globe."

But the manufacturers' organisation, the EEF, said the chancellor had only done "part of the job" of rebalancing the economy.

"While businesses will welcome long-term reform and predictability of corporation tax... predictability has come at the cost of competitiveness," said EEF chief executive Terry Scuoler.

"[Manufacturers] will now be left wondering where the necessary growth and investment will come from, given the cuts to investment allowances and capital budgets."

The Federation of Small Businesses welcomed the reduction in the small business rate but said the rise in VAT would hurt small businesses in the High Street.

However, it added that "common sense has prevailed with the increase coming into play on 4 January 2011 and not on New Year's Day".

Regional assistance

The chancellor also announced that the capital gains tax "entrepreneurs' relief" rate of 10% on the first £2m of gains will be extended to the first £5m.

There is also to be relief for new businesses in targeted regions.

For new businesses setting up outside London, the south-east and the east of England over the next three years, employers will be exempt from up to £5,000 in National Insurance payments for each of the first 10 employees hired.

This scheme is intended to start by September.

In addition, a Regional Growth Fund will be set up to provide finance for regional capital projects over the next two years.

'Cautiously optimistic'

Mr Osborne also said that the government would reverse Labour's plan to increase the duty on cider by 10% above inflation.

Louisa Sheppy, who co-owns and runs Sheppy's Cider in Somerset, said she was "amazed" and "stunned" at the decision.

"I know they'd said before the election they'd do it but I really didn't think they would," she said.

However, Ms Sheppy also raised concerns about the rise in VAT, saying it was bad news for customers as the tax would simply be passed on to them.

Meanwhile Leo White, owner of Cumbria-based design company Hydrant Design, said he was "cautiously optimistic" following the Budget.

The measures were "kind of tough but had to be done", he said.

Related Internet Links

The BBC is not responsible for the content of external sites.