Small Firms Hit Hardest By UK Corporation Tax Changes

by Robert Lee, Tax-News.com, London

06 January 2009

Half-a-million of Britain’s smallest companies will have paid GBP2.4bn more in tax between 2006 and the end of the next tax year as a result of the government's changes to small companies tax, according to the opposition Conservative party.

The figures, compiled from answers to parliamentary questions, reveal that Prime Minister Gordon Brown’s decision to abolish the starting rate of corporation tax (of 0%) while he was Chancellor of the Exchequer in 2006 meant over 250,000 of the least profitable companies became liable for the full small companies rate, now at 21%.

In total, some of Britain’s most marginal companies will have paid as much as GBP900m in extra corporation tax by next year, when previously they were exempt, according to the Tories.

The party also claims that 250,000 companies with profits of between GBP10,000 and GBP50,000 will have paid as much as GBP6,194 more in tax by 2009 due to Brown’s decision to remove the Marginal Starting Rate Relief from corporation tax.

Both these groups of companies must also contend with a second wave of tax rises as a result of the increase to the small companies rate from 19% in 2006-07 to a planned 22% in 2010.

Justine Greening, the Shadow Economic Secretary, condemned Labour’s approach to Britain’s small companies:

“At a time when 1 in 10 businesses are reported as being on the brink of failure, these figures reveal the truth about how Gordon Brown has treated Britain’s small businesses over the last 3 years. It is as if he has tried to tax our smallest companies out of existence.”

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