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Revive small profits rate to help SMEs, say accountants

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SMEs could for the first time be paying a higher effective rate of tax than bigger businesses, according to research by accountancy firm Moore Stephens.

Based on a study of over 10,400 companies, the effective rate of corporation tax paid by businesses with a turnover of less than £25m was 21.7% in 2016, while businesses with a turnover of more than £1bn paid an effective rate of just 20.1%.

SMEs no longer have the benefit of the small profits rate, which was progressively merged with the main rate between 2010 and 2015.

‘Re-introducing a lower corporation tax rate for SMEs would provide a much-needed boost for smaller companies, especially in the earlier years of their development’, argues Mike Cooper, partner at Moore Stephens.

‘Recent tax rate reductions have clearly focused far more on encouraging larger businesses than SMEs’, he commented.

Cooper suggests that larger corporates may be better than SMEs at identifying and claiming available reliefs. Tax reliefs targeted at SMEs like research and development tax credits and 100% capital allowances ‘remain stubbornly under-claimed, mainly through lack of awareness’, he said.

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