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Budget 2011: main rate of corporation tax to be cut

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There was good news for larger firms in the Chancellor’s second Budget as he announced a further cut in corporation tax.

As part of the Government’s strategy for growth, Mr Osborne said that the main rate of corporation tax will be reduced by 2 per cent as from April 2011.

The original cut had only been for 1 per cent.

In line with plans set out in last year’s Budget, corporation tax will continue to fall by a further 1 per cent annually over the following three years, before reaching 23 per cent in 2014.

An increase in the bank levy from January 2012 should counterbalance any benefits to the banks.

However, the small profits rate, which affects smaller firms, won’t be seeing a higher than promised cut. It will reduce from 21 per cent to 20 per cent.

New Foreign Controlled Company rules are to be introduced in the 2012 Finance Bill to enable groups based in the UK to compete more favourably with those abroad, including an effective UK tax rate on overseas financing income of 5.75 per cent.