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Corporation tax cut makes up for other business gripes 27/03/12

Chancellor George Osborne announced a reduction in corporation tax from 26% to 24% from 1 April 2012, with a further reduction to 22% by April 2014, describing  his budget as one that "unashamedly backs business",

Business leaders welcomed the bigger-than-expected cuts to corporation tax in Wednesday's Budget  – and the signal that it could fall to as low as 20% – but warned the chancellor the reduction was not a "silver bullet" to bolster the economy.

The UK would then have the lowest corporation tax in the G7 and the fourth lowest in the G20, Osborne said, signalling that he was heading for a 20% rate.

Despite his claim that he was eyeing a 20% tax rate, the Institute of Directors called on him to aim for 15% by 2020.

Matthew Sinclair, director of the Tax Payers Alliance (TPA), said the planned reduction of the main rate to 24pc from 26pc in April, and to 22pc by 2014, would have a direct positive impact on wages and productivity.

"The corporation tax cuts announced are very likely to mean higher wages over time. There is therefore a direct impact on the public, as well as an impact on business and business confidence”

Employers' body the CBI echoed this view. "An extra 1% off corporation tax this year could make a big difference to investment intentions. Plans to reduce the top rate of tax to 45p by April 2013 will show best and aspiring talent that this government wants them to create wealth here," said John Cridland, CBI director general.

Stuart Coleman, Manager of the Tax Department of ABDS says:

"This is positive news that will help the competitiveness of the UK. And with further reductions to 22% by April 2014 it can be a real incentive for attracting business into this country.” 

The cut in corporation tax will cost £920m annually by 2016-17, while the increase in the bank levy on balance sheets (rather than profits) to 0.105% from 0.078% will ensure that the £2.5bn target Osborne wants to raise from it each year is reached. Without the increase, there would have been a shortfall every year between now and 2015/16, when it was forecast to hit £455m.

The levy cost the UK's biggest bank HSBC £350m in 2011, when it also paid £189m corporation tax in the UK. Barclays paid £325m and does not disclose how much UK corporation tax it paid. Loss-making Lloyds Banking Group paid £189m in the levy, which cost Royal Bank of Scotland £300m. RBS now expects its bill to increase by £100m as a result of the rise and does not expect to pay corporation tax in the UK for some time as it has £2.9bn of deferred tax assets stored up from losses.

If you need any help and advice for your business on Corporation Tax or any other implications of the 2012 Budget, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

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