I have another example of such a tax cut to add to the list. And this one I'm afraid emphasises how out of touch are the MP's who vote on these matters.
The alternative view would require me to attribute a high degree of cynical game playing to the 18 MPs who signed a parliamentary motion. Is it really possible that they only did so for the PR that has followed despite knowing that the tax to which they refer will not be payable until 2010. So, even if the Government did as requested the impact would have NO IMPACT at all on cashflow during the recession.
Sadly - I think it more likely that the MPs genuinely think they are trying to help (and secure some positive PR) and are wholly unaware of how ineffective would be a successful outcome to their demands. ie: they do not understand even the most basic of points about our tax system - ie: when tax is payable.
According to press reports the MPs have called on the Government to "back down on the plan to increase corporation tax on small businesses from 21% to 22%". Amazingly the claim is being supported by the Federation of Small Business which I would have hoped did understand how the tax system works.
Quite simply corporation tax is payable on profits made during an accounting period. The rate of corporation tax on small company profits (upto £300,000) is to increase by 1% to 22% from 31 March 2009. It will only be payable ON PROFITS MADE AFTER THAT DATE. And corporation tax is not payable until 9 months after the end of an accounting period.
By way of example - assume 12 month accounting periods ending:
- 31 March 2009 - Subject to corporation tax of 21%. Payable 31 December 2009.
- 30 April 2009 - Subject to tax at 21% on 11 months profits and 22% tax on profits in April 2009. All payable 30 January 2010.
- 30 September 2009 - Subject to tax at 21% on 6 months profits and 22% tax on 6 months profits from April 2009. All tax payable 30 June 2010.
- 31 March 2010 - Subject to tax at 22%. Payable 31 December 2010