Medium-sized firms may be allowed to opt out of corporation tax under proposed scheme

By Dan Atkinson

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The Chancellor is considering schemes to boost Britain’s medium-sized companies by allowing them to step outside the reach of corporation tax.
The plan is one of a number of measures being considered for inclusion in Wednesday’s Budget, which is also expected to contain help for the building sector and  possible action on business rates.

Treasury officials, concerned that aid so far has favoured small firms or giant multinationals, have been looking at ways to help mid-sized firms with a turnover of between £50million and £500million.

One possible scheme would allow them to opt out of corporation tax as long as they distributed most of their profits to shareholders in dividends. The measure would be similar to the reform of property companies into Real Estate Investment Trusts.

Boost: The Chancellor is considering schemes to allow medium-sized companies to step outside the reach of corporation tax

Boost: The Chancellor is considering schemes to allow medium-sized companies to step outside the reach of corporation tax

By removing the administrative burden of corporation tax, the companies could focus on growth.

But the move would not necessarily cost the Government anything, as the lost corporation tax would be made up by higher income tax takings from the shareholders who received bigger dividends.

With the economy facing the prospect of a triple-dip recession, the Chancellor is under intense pressure to produce a package of shock therapy. But with his deficit-reduction plans behind schedule, Osborne has little money to play with and limited room for manoeuvre.

In the circumstances, monetary policy, run by the Bank of England, will take more of the strain as the Chancellor seeks to ensure its Funding for Lending Scheme benefits business rather than fuelling mortgage lending.

Under the £80billion scheme, the Bank makes money available at cheap rates to high-street banks on condition they pass it on to firms and households.

It is thought Osborne may order the banks to make public what proportion of this extra lending goes to business. He may also suggest watering down the Bank’s inflation-control mandate.

But in a TV interview this weekend, outgoing Bank of England Governor Sir Mervyn King warned against any tinkering with the inflation target.

‘If we don’t hit the inflation target over time, the cost to our economy will be very severe,’ he said.

While there will be no U-turn on deficit reduction, it is thought the Chancellor may find some extra money for building and infrastructure projects.

Other measures will include simplified tax accounting for small traders, Corporation Tax reliefs for the animation, video and television businesses, a ‘mansion tax’ on company-owned properties worth more than £2million and an end to their capital gains tax exemption and the taxation of herbal smoking products at the same rate as tobacco.

‘This is a defining week for the Chancellor,’ said Alex Jackman, of the Forum of Private Business. ‘If he gets this one wrong, the pressure on him can only mount.’

The Federation of Small Businesses called for help for first-time exporters.

 

The comments below have not been moderated.

What a cracking idea - perhaps I can now go on the Lions tour this summer....

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As a small Business owner I must have missed all the help that's come my way!

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Reducing CGT to 10% would give a boost to the Chancellors tax take. surprised the penny hasn't dropped yet.

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I'm a small Ltd Company and in my first year. I personally am more than happy to pay CT on account but HMRC won't permit this. To me as I've earnt the money, am totally on top on my accounts monthly, I find it madness that I can't pay in advance as the Government needs all the cash it can it's hands on right now. However, if I fall on hard times, have a few bad months that means I will be tempted to dip into my CT savings to survive, they will set up a debt repayment plan for me.

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Could this be a sudden dawning realisation that businesses will leave the UK unless we tax them less? which means the employees they employ will not pay tax because they no longer have a job. Fix the system so it's fair for all.- Bruce1510 , Cheltenham, 17/3/2013 09:56 >>> Actually this policy would lead to the HMRC receiving more and not less tax. It would also be a favourable timing difference to them at the expense potentially of corporates not reinvesting for growth. This is nothing more than another ploy to get as much tax as possible as soon as possible. These companies have to be audited, pay Vat, NI etc etc so I'm not sure what real savings there could be in somehow not having to calculate actual tax for the HMRC as they would have to additional undertake capital adequacy etc etc before dividend distributions... seems another flakey pastry tax idea.

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errrr. you cant distribute a dividend unless you pay corporation tax

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Could this be a sudden dawning realisation that businesses will leave the UK unless we tax them less? which means the employees they employ will not pay tax because they no longer have a job. Fix the system so it's fair for all.

Click to rate     Rating   7

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