MP CALLS FOR CORPORATION TAX RELIEF FOR OWNER/DIRECTOR BUSINESSES
16 October 2020
Anne Marie Morris MP, Member of Parliament for Newton Abbot, is calling on the Government to introduce a corporation tax relief measure for owner/director businesses, many of whom have missed out on Covid business support funding due to the nature of their businesses.
A significant number (estimates point to around 2M) owner directors who pay themselves through dividends have not been able to access grant support during the COVID19 crisis. These are typically small companies with either a single owner/director of perhaps a husband and wife/ partner running a small business from a home-office base. They are not eligible for SEISS nor (because they do not have premises) for business rate relief.
These companies are an important component of the UK economy and those that operate in a B2B context form part of the supply chain for larger companies. Being at the end of supply chains or perhaps providing services to other companies these small firms have seen a dramatic and sudden reduction in business.
Owner / directors pay themselves through dividends on the profits that they make. As is prudent, they have typically organised their tax affairs to ensure that they pay the right amount of tax in the most efficient way within the law, and compliant with HMRC requirements.
Implement a scheme which enables eligible businesses to receive a one-off relief from Corporation Tax (CT) due on the first £72,500 of profit for the 2019/2020 tax year.
Rationale and Cost
A one-off CT relief with a cap of £72,500 is, at 19% CT rate, the equivalent of a £13.775 saving. This is slightly less than the maximum amount available under the SEISS grant scheme (£14,070) - and significantly less than the £25,000 grant available to firms in the hospitality sector.
The scheme would therefore be a proportionate response to mitigate the disruption caused to eligible businesses.
Since the numbers of people eligible for SEISS (2.3M) is similar to the numbers that would be eligible for this scheme, the costs too should be of a similar magnitude. Furthermore, this proposal would not involve issuing grants but foregoing tax revenue over the current tax year.
Implementation & Eligibility
- Owner directors should be able to demonstrate their CT liability from their company accounts.
- Individuals who have benefitted from SEISS would not be eligible for both schemes.
- Companies that have benefitted from Small Business Grant Fund and / or Retail, Hospitality and Leisure Grant Fund would not be eligible for this CT Tax Relief.
- In order to target the scheme on small businesses a £100,000 CT liability ceiling should be set.
Anne Marie Morris MP – “Throughout the pandemic, the argument has been advanced that it is impractical to develop a dividend-based grant because of the difficulties in stripping out relevant dividends from other dividend income that may have been received. This proposal removes that obstacle.
There is a growing perception that this group of hardworking individuals is being isolated from support by a Government which espouses the notions of entrepreneurial spirit, because it is too difficult to identify a mechanism to support them. This proposal mitigates that charge and will allow our hardworking small and medium sized businesses to continue to operate during this dreadful situation, which came about through no fault of their own.”