 Small companies lose out to pay for big company tax cuts
21 May 2010: While many large companies will welcome the corporation tax cut to be announced in the Budget, small companies will lose out from likely changes to capital allowances according to PKF Accountants & business advisers.
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 | Marios Gregori, Tax Partner at PKF says: “For companies with annual profits above £1.5m the expected cut in the headline rate of corporation tax to 25% is clearly good news. But less profitable companies will make smaller savings and those with annual profits of less than £300,000 will probably lose out.” |
The corporation tax rate for small companies is set to reduce from 21% to 20%. So any company currently claiming capital allowances1 on investments in plant and machinery is likely to lose overall, if they are withdrawn.
Marios says, “If the £100,000 annual investment allowance is abolished, many small businesses will have to re-think their investment plans. In most instances, they will lose more than they gain from the 1% cut in the small companies’ rate and may not benefit from the cut in the main rate of corporation tax for many years – if ever.”
The Conservative party has long argued that the current regime of tax breaks (capital allowances) to encourage business investment in plant and machinery is too complex and distorts business investment.
The corporation tax cut and the likely capital allowance changes are expected to take effect from April 2011, although changes from 1 July this year cannot be ruled out. However, all is not lost. Marios says, “Depending how the allowances are removed there may be an advantage in bringing forward an expected investment or purchase. For example, buying that new machine now should mean that you can claim the annual investment allowance before it is abolished or claim other allowances at current rates before they are phased out or reduced.”
Marios concludes “These changes will hurt many small businesses already struggling in the recession. It is hard enough to find the funds to invest in and build your business as it is: cutting capital allowances effectively puts up the cost of such investments.”
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For further information, please contact:
Jane Murray, PR, 020 7065 0135, jane.murray@uk.pkf.com
Notes to Editors:
- The current matrix of capital allowances is explained in a PKF briefing available online here.
- PKF is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk.
- PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
- PKF (UK) LLP is a member firm of the PKF International Limited network of legally independent firms. The PKF International Limited network has around 15,000 people operating in 120 countries around the world.
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