Rates

There are two contrasting pressures on corporation tax. The UK’s main rate of 28% is increasingly seen as high by international standards and a barrier to attracting overseas investments. At the same time the special low rate of corporation tax of 21% is seen as an anomaly which enables small business to avoid paying their fair share of tax.

Convergence?

Longer term it is likely that the rates will converge to a single rate of probably, 25%. An increase in the small company rate has been postponed twice and at this stage in the political cycle tax increases are probably not high on the Chancellor's agenda – but we may get some indication of direction of travel if the government is re-elected.

Payment of tax

The business payment support service (BPSS) has enabled many businesses to manage their tax cashflow. As the economy strengthens businesses will need to get their tax payments up to date and this will put them under short term cash pressure. We expect the BPSS will continue but that there will be some tightening of the criteria.

Clarity?
 
It is likely that time to pay arrangements will be put onto a statutory basis and there may be some announcements about this.

Small business tax

Tax policy for small business has been a problem area in recent years. We have seen a number of short-lived tax initiatives, such as the 0% corporation tax rate, but there has been no settled view of how small businesses should be taxed. In particular the government has been unable to decide how to deal with family-owned businesses.

Finality?

Some areas of small business tax do need to be reformed, but chipping away at the edges is not the right way forward. Let’s hope for some stability into small business tax.

For more information visit the RSM Tenon website: www.rsmtenon.com/Budget2010 or speak to your usual RSM Tenon contact or contact RSM Tenon on 0845 223 2010 or email: vicki.davies@rsmtenon.com