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10. Corporation tax


No changes to corporation tax rates were announced so the rates we are working with for the financial year starting 1st April 2005 are as follows:

· The small companies’ rate of corporation tax is 19%, and applies where a company has profits of between £50,001 and £300,000.

· Where a company’s profits do not exceed £10,000 the starting zero rate will apply (but see below). Any profits between £10,001 and £50,000 will continue to be assessable at the marginal rate of 23.75%.

· The main rate of corporation tax will continue to be at 30% and will apply to profits of a company of more than £1,500,000.

· Between £300,001 and £1,500,000 marginal rate relief applies. This operates to increase the overall rate of tax to somewhere between the small companies’ rate of 19% and the main rate of 30%. Profits in excess of £300,000 will effectively bear tax at the marginal rate of 32.75%.

However, it is important to note that the Government introduced from 1 April 2004 a corporation tax charge on dividends paid to non-corporate shareholders where corporation tax is not otherwise payable (i.e. the company’s profits do not exceed £10,000).


At the time of the 2004 Pre-Budget Report the Inland Revenue issued another technical note on the subject of corporation tax reform. This note dealt with

Reform of the schedular system – the aim being to abolish schedules and pool all profits and losses.

The tax treatment of capital assets – it is felt by the Government that the current capital allowances system does not work well and some sort of reform is required, though there appears to be no agreement yet on how

The tax differences between trading and investment companies, with the aim of bringing the computation of profits of investment companies liable to tax more into line with those of trading companies

Leasing – the Government feels that the tax rules encourage companies to lease capital assets rather than use loan finance. It would like to amend the rules to counter this perceived bias.

No further reference to corporation tax reform was made in the Budget.


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