Tory tax plans discriminate against sole traders and partnerships

Last Sunday George Osborne explained in a TV interview how the Tories plan to fund the reductions in corporation tax they have promised.

During the Andrew Marr show Mr Osborne initially stated that the reductions in the rate of corporation tax would be paid for by the “abolition of some complex reliefs”. When pressed however, he went a little further and stated that "an investment relief predominantly available to small businesses would be abolished" to “simplify tax".

The only obvious candidate for such abolition would be the 100% Annual Investment Allowance (AIA). However this relief currently simplifies the tax position for small businesses as it enables them to write off the cost of capital assets acquired each year (upto £50k pa). Crucially the relief is also available to sole traders and to partnerships who would not benefit from the reduction in corporation tax. So abolishing the AIA completely would mean more tax and complexity for them and no compensatory reduction in the rate of tax payable on their profits.

At this stage we can but hope that, if the Tories are elected, that the AIA remains available to the smallest businesses (regardless of their legal structure). The tax system has long been distorted due to the damage caused by constant tweaks to the tax status of small businesses. Reductions in the rate of tax paid by small companies on their profits will perpetuate the destablising impact of constant tax changes for smaller businesses.