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Why small firms should pay less corporation tax

9 September 2016

Why small firms should pay less corporation taxAfter UK firms paid a record amount of corporation tax last year, Funding Options is calling on the Government to reduce the tax burden on small businesses.

A record high £32.4 billion in corporation tax was paid by UK businesses last year, up 8% on the £30 billion paid the year before, according to analysis by Funding Options.

These figures exclude financial services businesses and North Sea oil and gas companies. Corporation tax revenue from North Sea oil companies fell from a peak of £10.2 billion in 2008/2009 to £2.5 billion last year. According to Funding Options, the extra tax taken from mainstream UK businesses has been plugging this gap.

Now it is calling on the Government to reduce the corporation tax rate for small businesses. Conrad Ford, ceo of Funding Options, said: "With the corporation tax take now at record levels, the Government can now afford to ease the tax burden on small business. Reintroducing a lower corporation tax rate for small businesses would be a major and deserved boost to UK SMEs."

This week, Jane Ellison, financial secretary at HM Treasury, told the HMRC annual conference that: "We don't want a tax policy that sees those who are struggling the most, hit the hardest. So I'll be working over the coming months to continue delivering on that agenda."

Conrad Ford said: "Small businesses in the UK benefitted from a lower rate of corporation tax for over 40 years until 2015. This was an effective way of helping small businesses to compete with larger rivals and would be so again. Small business are an engine of growth and new jobs - the Government should be doing all it can to foster a business culture that allows SMEs to thrive."

Another way to help SMEs would be to increase the Annual Investment Allowance in order to encourage small businesses to invest in new equipment, he said.

The Annual Investment Allowance gives businesses tax relief on capital investment; the relief is currently £200,000 per business per year, down from £500,000 in 2015. "Increasing the Annual Investment Allowance would mean that restaurants could invest in new kitchens, manufacturers could invest in new machinery, and design businesses could invest in new IT," said Ford.

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