Budget 1999: Corporate Taxes - Mixed welcome for tax plans

The Budget and Business

THE CHANCELLOR'S announcement of a 10p starting rate for small companies was hailed as a signal of the Government's intention to encourage enterprise.

But companies and their advisers gave a mixed reaction to the plans.

Mr Brown said the reduction of the main corporation tax from the present 31 per cent to 30 per cent from April - announced in last November's pre-Budget - gave Britain not only its lowest corporation tax on record, but the lowest in the world.

And reduction of the small companies' rate to 20 per cent - also announced in the pre-Budget statement - would benefit 350,000 companies.

But advisers stressed that the measures were piecemeal, one describing them as "fiddling". The 40 per cent capital allowances for small and medium-sized businesses amounted to an extension of an existing policy.

Introduction of a 10 per cent starting rate for small companies was seen as a helpful addition to the measures aimed at boosting enterprise.

Mr Brown said 85 per cent of the firms benefiting from this new rate would have fewer than 10 employees.

But accountants said the 10 per cent rate applied only to companies making annual profits of up to pounds 10,000. There was a taper up to the pounds 50,000- point, at which the 20 per cent rate would apply. Yet Nicholas Woolf, tax partner with accountants Arthur Andersen, said: "A good Budget for small and start-up businesses and their employees. Welcome stability for big business."

Advisers to family businesses were relieved that the Chancellor had not taken action on inheritance tax, an important factor when businesses are passed down the generations, and that capital gains tax had not been made more complicated. In addition, the proposal for tax credits for investment in research and development - put at 24 per cent for non- tax paying companies - were likely to prove a useful incentive

The most important issue for big business was that the spectre of a general anti-avoidance rule designed to make it harder for companies to establish tax-planning arrangements had disappeared, for the present. Accountants said the plans were likely to complicate and disrupt commerce.

Large companies were concerned that the cut in the employer's national insurance contribution from 12.2 per cent to 11.7 per cent would not sufficiently offset the cost increase of introducing an energy tax when both became effective in April 2001.