Corporation tax rates - additional 1% reduction from April

The main rate of corporation tax will now reduce to 26% in April 2011, and not 27% as previously announced. The small profits rate of tax paid by small companies will however still reduce only by 1% to 20%.

The reduction in the rate of corporation tax only applies to tax on profits in excess of £1.5 million in a year. The marginal rate on profits between £300,000 and £1.5 million will also reduce, with a marginal rate of 27.5% applying to profits in that range from April 2011, rather than the current rate of 29.75%.

The main rate of corporation tax will continue to reduce by 1% per annum until the rate reaches 23%.

Once the full rate of corporation tax reaches 23%, the marginal rate on profits between £300,000 and £1.5 million will be 23.75%, assuming that the small profits rate remains 20%.

One for the larger companies rather than many SME's and the relative benefit of the small companies rate continues to diminish over time. Note that changes in corporation tax rates do not help sole traders and those trading in partnership. Certainly worth another review of their trading structure for these businesses.