TAX NEWS - June 2010

UK Tax: Businesses back corporation tax cut

George Osborne should press ahead with cutting corporation tax at the expense of capital allowances, according to a survey of business opinion ahead of next week's Budget.

Nine out of 10 companies polled by the British Chamber of Commerce said cutting allowances to fund a rate reduction would not damage their businesses.

The finding drew a cautious response from the BCC, however: "The Treasury should only push ahead with its simplification programme after a proper economic evaluation of existing allowances and reliefs."

The poll also found that half of businesses wanted any increase in value added tax to be brought in as a one-off increase, rather than be phased in.

The prospect of a rise in capital gains tax in next week's Budget concerned 44 per cent of businesses, worried about the impact on investor confidence and capital availability.

The partial roll-back of next April's employer national insurance contribution increase does not go far enough, according to most businesses surveyed. Six out of 10 said the rise should be rolled back in full, possibly funded by an increase in value added tax.

David Frost, BCC director-general, urged Mr Osborne to focus tax rises on consumption rather than payroll, income or profits. "The chancellor must tread carefully to avoid introducing damaging new taxes that negatively affect private sector growth."

He added: "Short-term revenue gains would be outweighed by longer-term economic consequences, from reduced business investment to lower rates of job creation."

In Tuesday's Budget the chancellor is expected to announce a review of tax breaks and allowances that could be cut to fund a reduction in corporation tax rates designed to create the most competitive tax regime of the G20 group of advanced economies.

Before the election, Mr Osborne had aimed to unveil a 3 percentage point cut in the corporation tax rate, paid for by reductions to allowances, in the emergency Budget. But the scope for immediate action has been reduced by the coalition pledge to protect manufacturing industry, introduced after Vince Cable, the Liberal Democrat business secretary, pressed the Conservatives to heed manufacturers' concerns about potential damage from reducing allowances.

The survey involved 1,000 BCC members, of which about half employed fewer than 10 people.