Sadly no chancellor will abandon corporation tax without an alternative

Stephen Herring

As Lord Saatchi proposes abolishing corporation tax for small firms, is the levy justifiable at all?

Sadly, no chancellor will abandon the £43bn corporation tax brings in each year until a suitable alternative is identified. Corporation tax will likely become a smaller component of UK (and global) tax revenues in the longer term but, in the meantime, tax cuts should focus on targeted reductions to business rates, national insurance, stamp duties and capital taxes. But we can make corporation tax work better. We’ve campaigned for owner-manager businesses to be given the option (but not forced) to be taxed on a transparent basis, with the profits assessed to income tax on their shareholders. Many businesses need to retain most of their profits to finance expansion. There are, quite rightly, a number of favourable tax reliefs available to businesses, against their corporation tax liabilities, to encourage such investment. These reliefs are vital to economic growth and employment prospects. They also can already substantially reduce or even eliminate a business’s corporation tax liabilities.

Stephen Herring is head of taxation at the Institute of Directors.

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