Brown woos big business
There were howlers in my hastily drafted initial budget blog. Here is my more considered view with - I hope - fewer solecisms.
The big point is that the corporate tax reforms, including the changes to depreciation allowances, are good for most big profitable companies - especially those which might consider relocating to lower tax countries.
The reason is simple: they'll be paying two percentage points less of corporation tax.
But the changes to the allowances and also the increase in the small-company tax rate means there will also be losers.
A small company that invests a fair chunk of its profits will probably be better off. But those that don't invest will definitely be poorer.
Among bigger companies, any business with lots of hotels or industrial buildings or runways will lose, as a result of the abolition of the industrial buildings allowance
There's also a redefinition of what counts as fixed long-life assets and what counts as plant and machinery, to crack down on companies that obtain generous equipment allowances on fixtures and fittings in buildings.
Broadly, if a bit of kit is nailed down, it can no longer be classified as plant and machinery. So henceforth it will only obtain long-life asset relief of 10 per cent (which is being raised from 6 per cent) as opposed to the previous 25 per cent relief on equipment.
This is where it all becomes a bit complicated and involved. That 25 per cent per annum relief on investment in plant and machinery is being cut to 20 per cent. So any company that invests in lots of equipment will be hurt.
And, as I said, any company that has lots of buildings will be hit.
All of that doesn't sound like good news for BAA, or some transport businesses, or energy companies and utilities, or Network Rail or the Royal Mail (and in Royal Mail's case, that's a potential headache for Government, as its owner).
And my hunch is that BT will also be quite significantly hit.
But what the losers have in common is that it's rather harder for many of them to base themselves abroad for tax purposes.
The winners are those businesses with fewer industrial buildings or which have significant net cash flows, such as creative companies, banks, assorted financial service providers, other service companies, retailers, pharma and high tech.
For many of them, if the subscription price of being a member of the club of British companies - in terms of tax payable - were to become too steep, it would be relatively easy for them to emigrate.
Today Gordon Brown has cut that membership fee and hopes the likes of WPP, Vodafone, HSBC and Barclays can be persuaded to pay their reduced British tax with pride and enthusiasm (or at least not to do a runner to Dublin, or Amsterdam).
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"A small company that invests a fair chunk of its profits will probably be better off."
Utterly false. It depends what they invest their profits in. Many small businesses cannot afford to invest much anyway. Brown has sided with big businesses and is screwing small businesses to pay for it in tax rises.
After encouraging small businesses to incorporate through various tax advantages in previous budgets, Gordon Brown has effectively stabbed SMEs - the backbone of the UK business economy - in the back with his 3% tax rise. Although the phased increase is masked with announcements about greater opportunities to claim credits such as the R&D and investments allowances, in practice the qualifying criteria are so limiting that hardly any businesses can actually qualify.
SMEs are basically financing the tax cuts offered instead to big corporates, the organisations Brown wants to keep onside due to the macro-economic benefits they bring in the form of community investment programmes, investment overseas and as larger scale employers.
It's as if he is saying to the small business community, we have enough of you now, it's time you started to pay more.
Paul Webb, Tax Partner at Robert James Partnership
Spot on analysis.
- Losers: most SME.
- Winners: the City and big multinationals, and to a lesser extent asset-intensive SME.
You are wrong and most of your commentators are wrong about the impact on big business. Brown dropped the tax rate on large corporations profits from 30% to 28% which would cost the exchequer about £bnillion, but he alos cut the rate of capital allowances fron 25% to 20%, which will increase taxes by about £4 billion. All in all it favours companies that do not invest in plant and machinery and penalises those that do.
Note that the corp tax rise for SMEs will be 10% : (22-20)/20 x 100 - not good to have your profit levels cut by that margin !!
What's he playing at ?
But of course the headline point in all the media is 'company tax reduced' - forgetting about us. Good spin !
> But what the losers have in common is
> that it's rather harder for many of
> them to base themselves abroad for
> tax purposes.
Yes. Hit them where it hurts (in the
pocket), but only if they can't do much
about it. That is great politics, and
shows how to beat business at its own
game. The companies pay, yet have to stay!
It is really tiresome for SME's that we have to pay more in corporation tax when we can afford it the least. I am 26 and my two colleagues are 24. We have all been working for ourselves since leaving university and year on year it has become harder to run a viable business.
Why should we bare a greater relative burden than established, larger businesses?
Does the government want us to abandon trying to run our own business and get jobs with the bigger businesses it favours?
This government loves to penalise the the groups that are numerous enough to make a fiscal difference to the treasury but small enough not to get too much press attention.
Can't see this hitting BT, or many similar companies, hard — they sold off their buildings years ago and lease them back.
The increase in corporation tax for SME is all the more gauling when you know that your profits are being used to buy off large organisations with tax cuts to stop them from re-locating abroad.
Small businesses and partnerships had been thrown the bait of incentives to incorporate and have now been reeled in by tax increases.
We are but small fish in an ocean of sharks!
BT's buildings are mainly owned by Land Securities and BT Property, and not by BT Plc. This was to get out of the 30Bn hole they found themselves in as a result of the dot com bust. Why else do you think they would have sold Yell mmo2?! They were broke and needed the money, so no they won't be hit at all!
Small companies should pay the same corporation tax rate as big ones. This would enable the large company rate to be reduced further which will stop the move abroad to Ireland etc where rates are lower. Most small companies are set up to stop their owners paying employers and employees national insurance (total 23.8%) as they declare dividends instead of paying full PAYE. I know as I used to run one myself.
GB has created the peverse situation where its better not to own but to lease. Its better not to invest in assets but to lease. The benefit of building an asset base is that you can use it in times of hard trading but if you are simply a collection of lease payments your businesses is inherently more risky as your lease agreements can always suddenly increase and as a business you have less of a buffer against market downturns. So there is a massive arbitrage opportunity betweeen the 100% relief on interest payments and the 20% relief on plant and machinery.
"Brown woos big business"
Brown is owned by big business.
Mike is correct. Nearly all small businesses will be worse off. Basicly we are paying for the tax cuts of the big companies.
That we can claim back R&D tax relief is a myth. We spent £250,000 on R & D and ditifully filed our claim.
Our accountants told us it was a waste of time and it was. Most R&D does not qualify.
Don't be fooled: Companies like mine will pay £9,000 extra a year to fund the £160 million refund for RBS.
Henry Stewart, Happy Ltd
I am a single law abiding citizen, have worked hard and now run a reasonably profitable SME. I work from home with low carbon emissions and pay in the region of £30,000 a year in tax, and the only service I receive is a sporadic emtying of my bins.
Adding a 3% increase has just pushed me over the edge and I am now looking at relocating to Dubai where I will pay zero tax. Sorry for the whole that I will be leaving for everyone else to fill!
How can Gordon Brown dictate the next three years taxes when he is not going to be chancellor next year?
Jim, I took the decision to relocate my software business to Dubai about 2 years ago and have been here 18 months now.
Gordon Brown is naive to think that only big businesses can move overseas. He is quite wrong. With email, web, VoIP and other such technologies now the norm on every PC, it is not a problem at all.
Singapore and other places also offer very attractive prospects for small businesses to setup. You can complete all the formalities and operate in English.