Corporation tax

A big sounding tax but small companies aren't exempt

What tax allowances are there for small business spending on ICT and on R&D?

100% first year allowances (FYAs) on capital expenditure made by a small business on computers and peripherals, software and the latest web-enabled mobile phones ran from 1 April 2000 to 31 March 2004. From 1 April 2004, the maximum amount that can be offset against a yearly tax bill is 50% and the FYA comes under the heading of spending on ‘plant and machinery’. The same kinds of technology are eligible, including all kinds of computers, from mainframes to palmtops. as well as peripheral devices include monitors, keyboards, mice, printers, scanners, CD ROM and DVD drives; equipment includes cabling and any electrical systems dedicated to supplying electricity to computers. You can get further information from the Inland Revenue.

Inland Revenue also operates tax credits for small and medium sized firms investing in research and development (R&D). The R&D tax credit for SMEs works by allowing companies to deduct 150% of their expenditure on R&D activities when calculating their profit for tax purposes. The 2005 Budget announced measures to improve small business take-up of R&D tax credits, including simplified guidance and application procedures.

What are the current rates of corporation tax for small businesses?

The main rate of corporation tax is 30% for 2005/06 (on profits over �1,500,000), but small businesses pay 19% on taxable profits between �50,000 and �300,000. The starting rate is zero for companies with taxable profits of �10,000 or below. Marginal relief eases the transition from the starting rate to the small companies' rate for companies with profits between �10,000 and �50,000. The fraction used in the calculation of this marginal relief is 19/400. There is also marginal relief for the transition from profits of more than �300,000 to the main rate at �1,500,000.