CORPORATION tax is to be cut by four per cent to 24 per cent – a rate George Osborne claimed as the lowest of any major Western economy.
The chancellor said he wants “a sign to go up, over the British economy, that says: ‘Open for Business.’”
The tax for businesses with profits over £1.5m a year will fall from 28 per cent to 27 per cent next year, then will be reduced by one per cent annually for the following three years.
The rate for small companies, with profits below £300,000, will also be cut from 21 per cent to 20 per cent.
“It will give us the lowest rate of any major Western economy, one of the lowest rates in the G20 and the lowest rate this country has ever known,” said Osborne.
Business groups yesterday welcomed the decision to cut the tax, which currently costs companies around £43.3bn a year.
Richard Lambert, director general of the CBI, said: “Business strongly commends the new and refreshing approach to tax policy-making which should help ensure that the UK tax regime returns to the forefront of international competitiveness.”
But Barry Murphy, corporate tax partner at PricewaterhouseCoopers, said the reduction in capital allowances tempers the bonus.
He said: “Welcome as the reduction in the Corporation Tax rate for small and large companies is, a move to 24 per cent is unlikely to affect major business decisions. The marginal reduction in capital allowances to pay for the cut means that many may be in no better a position in the next few years.”
Osborne also signalled welcome changes to the UK’s contentious controlled foreign companies (CFC) rules, which tax UK multinationals for profits generated in overseas subsidiaries.
The chancellor suggested the rules, which have seen the likes of WPP and Experian relocate overseas, are likely to be relaxed as part of a wider review of corporation tax in 2012.
Bill Dodwell, head of tax policy at Deloitte, said: “The current rules have been criticised for being uncompetitive and not reflecting modern business practice, so reform is welcome.”