Small Talk: Labour’s plan to cancel the cut in corporation tax has the virtue of fairness

Labour says higher corporation tax would be used to finance a cut in business rates

While successive governments have been loudly proclaiming their commitment to smaller businesses, they have been presiding over a corporation tax system that has become vastly more reliant on revenues from these firms (Getty Images)

Call it redistribution of wealth or the politics of envy, but Labour’s plan for a tiny increase in the main rate of corporation tax should it win the election will at least go some way towards redressing the balance between the treatment of large and small companies in recent years. It is promising to use the revenues raised by cancelling the Budget reduction in the main rate of corporation tax from 21 per cent to 20 per cent to finance a cut in business rates for small businesses.

To see why this is important, you need to understand how the corporation tax system works. Traditionally, there have been two rates of this tax. Smaller companies, defined as those with profits of less than £300,000 a year, have paid a lower rate, while larger companies have paid more – just as individuals who earn bigger salaries are expected to pay income tax at a higher rate. Complicated marginal relief rules have offered businesses just above the £300,000 threshold some protection, but in the past at least, larger businesses with deeper pockets always shouldered more of the corporation tax burden.

That has comprehensively changed under the Coalition Government, as analysis conducted by Prem Sikka, professor of accounting at Essex Business School at the University of Essex, reveals. On the basis of Treasury statistics, he calculates that the total amount of corporation tax collectively paid by larger companies fell from £26.3bn in the 2000-01 tax year to £22.5bn by 2013-14, the last year for which figures are available; smaller companies’ payments, meanwhile, rose from £4.4bn to £13.4bn over the same period.

In other words, while successive governments have been loudly proclaiming their commitment to smaller businesses, they have been presiding over a corporation tax system that has become vastly more reliant on revenues from these firms. Smaller companies’ corporation tax payments tripled over a period when larger companies paid 15 per cent less.

Most of the blame for that lies with the Coalition Government. In 2000, where Professor Sikka’s analysis begins, large and small companies were paying corporation tax at 30 per cent and 20 per cent respectively. By 2010, when the current government came to power, the respective rates were 28 per cent and 21 per cent. Since then, the Coalition has managed a 1 percentage point cut to the smaller companies’ rate, but taken 8 percentage points off the main rate, so that everyone now pays the same.

This does at least offer simplicity – and many businesses will be delighted there is no longer any need for the marginal relief regime. But is it fair? Labour’s plan to increase the main rate of corporation tax looks rather more progressive than the Conservative portrayal of this policy as “the first time corporation tax has risen in over 40 years”.

Moreover, the headline rates of corporation tax are one thing, but what businesses actually pay is quite another. One reason for the contrasting stories on the tax take from smaller and larger businesses over the past 15 years is that the former lack the guile of the latter. Large companies are well-practised in the art of avoidance, using tricks such as transfer pricing and intra-group royalty payments to reduce what they actually have to hand over to the taxman. They also have the resources to hire sophisticated accountants and slick lobbyists. None of this is an option for smaller companies.

Leading scientists have said that man’s relationship with natural resources is “at a crossroads”

Junior market still depressed by natural resources sell-off

As the FTSE 100 index continues towards ever headier heights, investors on the Alternative Investment Market could be forgiven for feeling rather left out. Despite generous government support in the form of tax relief for Aim investors – the shares now qualify for Individual Savings Accounts and are not subject to inheritance tax – the junior London market has not performed with the same verve as its big brother during 2015.

In fact, since hitting a three-year high just over a year ago, Aim has taken a dive – it’s currently more than 18 per cent down on that peak despite a modest uptick since the start of the year. Part of the problem has been the continuing sell-off in the natural resources sector, where many Aim constituents find their home, but the malaise has been felt across the entire market.

Is there any reason to be optimistic about the months to come? Well, data from UHY Hacker Young does at least show liquidity on Aim is in good shape. The daily amount of trading in the typical Aim company is up 50 per cent on last year and now stands at an average of about £156,000 – that compares to just £95,000 at the height of the financial crisis, though the all-time high of £179,000 seen in 2007 remains out of reach.

Akers, which has a dual Aim and Nasdaq listing, has developed a pioneering new test that can rapidly detect whether patients have a potentially fatal allergy to heparin

Pioneering drug company boosted by marketing deal

One Alternative Investment Market company hoping to buck the general malaise on the junior market is Akers Biosciences, which will today announce a deal to begin marketing one of its flagship treatments in Britain and eight other European countries.

Akers, which has a dual Aim and Nasdaq listing, has developed a pioneering new test that can rapidly detect whether patients have a potentially fatal allergy to heparin, the blood thinning drug routinely used in hospitals around the world. The test is already in use in the US healthcare systems but Akers will now begin selling it far more widely across Europe, the Middle East and Africa.

The potential for the test is enormous – while millions are prescribed heparin, as many as 5 per cent of them develop an allergy to the product. Patients undergoing serious heart surgery or major orthopaedic procedures are regarded as particularly vulnerable to such problems.

Small Business Person of the Week: Bruce Davis, Founder, Abundance Generation

“We launched the business in 2011 – the idea was to bring together communities pioneering renewable energy projects, largely in the solar and wind sectors, with individuals who wanted to invest in this type of asset.

“Investments made through Abundance are in the form of debentures, which run for a fixed term and pay a share of the profits being made by the issuer as well as repaying your initial investment in fixed instalments. The companies raising money offer a reliable income stream, because they’re guaranteed to be able to sell the electricity they generate under the Government’s feed-in tariff system.

“We launched Abundance just as the alternative finance sector was getting going – we were the first regulated investment company in the sector, and while we’ve watched it grow, we continue to have a point of differentiation because our investors are looking for social responsibility from their investments as well as the returns they earn.

“We’ve already raised more than £9m from around 1,800 investors, but just as importantly we’ve handed £500,000 of that back to them in the form of income and capital repayments.

“I was one of the founders of Zopa, the world’s first peer-to-peer lender and in many ways Abundance is building on that foundation. I really believe this is a way for people to take more control of their money and their financial future, which is why we talk about this type of investment as democratic finance.”