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Emergency Budget 2010: companies see corporation tax reduction

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The Chancellor delivered against his earlier promises to cut the rate of corporation tax.

Starting from 1 April 2011, the headline rate of corporation tax is to be reduced by 1 per cent each year for four years until it reaches 24 per cent.

There was good news for smaller companies too. The small companies corporation tax rate is also to be reduced next year, down 1 per cent to 20 per cent.

The Chancellor said the cut in the headline rate would make UK corporation tax among the lowest in the G20 economies.

However, the price is going to be a small reduction in the rates for capital allowances. For most plant and machinery assets, the rate of allowance is to decline from 20 per cent to 18 per cent.

For assets with a longer lifespan, the special rate is to drop from 10 per cent to 8 per cent.

The Chancellor insisted that businesses would continue to benefit from full tax relief on qualifying expenditure but that it would over a longer period of time.

The Annual Investment Allowance is also to fall. The AIA enables most businesses to cut their taxable profits by the full amount of their annual capital investment on most plant and machinery up to £100,000 a year. That figure will come down to £25,000.

To give businesses a chance to adapt to the reductions, the Chancellor said that the allowance cuts would not take effect until April 2012.

The research and development tax credit is to remain in place while the government consults on any possible changes to the system.