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Could small companies say goodbye to Corporation Tax?

In news, which is sure to excite the owners of small businesses, the new chairwoman of the Office of Tax Simplification has proposed a total scrapping of Corporation Tax for smaller companies.

Angela Knight, appointed in December 2015, carried out some research into how corporation tax affects small companies, and her resulting report makes an interesting proposal. Rather than payment of Corporation Taxes, the business’s shareholders would pay income tax on any profits which the business makes.

The theory behind it is that paying Corporate Income Tax Rates would be so much easier for companies who distribute all profits to shareholders. Knight’s rules would only apply to businesses with no more than ten employees. There are around 4.1 million “micro companies” in the UK, and just under 1.5 million of these have a company structure.

Knight explains that this simplification would make life much easier for micro business owners because only one amount of tax gets paid. The taxation system was never set up with these small companies in mind, and as such, many of them find themselves out of their depth. These new proposals will ideally make the world of taxation a little more friendly for the small fish in a big pond.

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