Tax breaks for small business

The self-employed and SMEs received a boost this week as part of a series of financial support measures announced by Chancellor George Osborne. Osborne stated that Britain was in need of a sign that stated ‘Open for Business’ which led him to cut corporation taxes.

He explained that when globally compared, corporation tax rates that are low help boost the business of countries that drop them and hence the UK rate of 28% is too high to be competitive.

He plans to cut the tax next year by one percent which will make it 27 pence to the pound.  There will also be four annual reductions to follow that will cause the tax rate to drop to 24% per pound, which Osborne believes will give the UK the lowest corporation tax rate of any Western economy.

The reasoning behind the cuts was to offer sustained recovery in the job market and growth that occurs across all sectors and areas of the country. Small companies will see their tax rate drop to 20%, which is a reversal and welcome news to SMEs that thought they would see the tax rate increase up to 22%.

According to Osborne, 85,000 companies should benefit from the cut and the Enterprise Finance Guarantee Scheme will be introduced which supports SME access to lending.

Tax partners at HW Fisher & Company, Tony Bernstein, stated that the decreased corporation tax will be welcomed on all fronts across the business community but may not have the largest impact as Osborne believes due to the fact many companies have suffered losses and reduced profits over the last several years.

Berstein continued to say that self-employed people may want to think about running their business via a company so that the profit they do not need to spend can be taxed at a lower rate.