Small business tax break scrapped

Yet another measure in the Pre-Budget Report was the direct result of the consequences of one of the Chancellor's earlier mistaken/well-intentioned but cruelly misused (delete as appropriate) measures. Gordon Brown has abolished his 0% tax break on smaller company profits.

Back in 2002 he had introduced a proposal allowing small companies earning under £50,000 to retain the first £10,000 of profits tax free. It was a huge incentive to incorporate and many small companies were created as a result. Incorporations jumped from 67,000 in 2002 to around 330,000 last year. The scheme was costing the taxpayer around £670 million a year.

In last year's Budget the rule was changed to allow only those companies that retained the £10,000 for reinvestment to qualify. Now that final vestige of the measure has gone, to be replaced by a 50% first year tax allowance on capital expenditure. However, Gordon Brown may have left many small businesses a legacy of increased costs in maintaining company status and filing accounts.

Back to Pre-Budget 2005