The rates of Corporation Tax are unchanged for the year commencing
1 April 2005 at 30% for companies with profits over £1.5m,
19% for companies with profits between £50,000 and £300,000,
and zero for companies with profits up to £10,000. The same
marginal rates as before apply to those with profits between £300,000
and £1.5m, and between £10,000 and £50,000.
Income derived from a small company
Last year, the Chancellor introduced a rule to limit the tax advantage
that can be obtained by running a small business through a company,
rather than through a partnership or a sole trade. He promised that
this area would be kept under review, because there still is a substantial
advantage for the small company. Although a consultation on possible
changes was announced in December 2004, no changes were announced
in the Budget, so presumably those advantages will continue at least
for the next year. This means that the minimum corporation tax rate
on distributed profits remains 19%.
Change to IFRS
Many large companies have to change their accounting policies in
2005 to comply with International Financial Reporting Standards.
A change of accounting policies will affect the amount of the profits
disclosed in a company's accounts. A large number of technical
provisions were announced in December to deal with the tax effect
of these accounting adjustments, and the Budget confirmed these
rules and announced some more. Dealing with the accounting change
to IFRS will be difficult enough for companies affected, and the
tax rules add a further layer of complexity.
Research and development
In the Budget speech, the Chancellor announced an intention to improve
the tax incentives available for medium-sized businesses for carrying
out research and development work. At present, small and medium
companies enjoy a 50% uplift in R&D expenditure for tax
purposes - in effect, a tax subsidy for incurring the right sort
of expenditure. Large enterprises only receive a 25% uplift.
No further details of the intended improvement were given in the
supporting press releases, but it appears that a consultation will
be conducted to take this forward.