Half of all British properties will see their business rates fall or be abolished altogether, said George Osborne as he announced his budget for “the next generation”.
A quarter of a million businesses will see a fall in rates under the shake up while 600,000 small businesses will pay no business rates at all as of April.
The Government is also simplifying the administration of business rates, and from 2020, switching the uprating from the higher RPI to the lower CPI.
“That’s a permanent long term saving for all businesses in Britain,” said Osborne. “A typical corner shop in Barnstaple will pay no business rates. A typical hairdressers in Leeds will pay no business rates. A typical newsagents in Nuneaton will pay no business rates.”
There is also a shakeup in store for the tax system as Osborne published the Government’s “roadmap to make Britain’s business tax system fit for the future”.
“It will deliver a low tax regime that will attract the multinational businesses we want to see in Britain, but ensure that they pay taxes here too. And it will level the playing field, which has been tilted against our small firms,” said the Chancellor.
“The approach we take is guided by the best practice set out by the OECD, work which Britain called for, Britain paid for and Britain will be among the very first to implement.”
Interest deductibility for large firms will be restricted at 30% of UK earnings to prevent multi-national firms from deliberately over borrowing in the UK to fund activities aboard and then deducting the interest bills against UK profits.
Hybrid mismatch rules are also to be strengthened to stop multi-nationals from avoiding paying tax anywhere, or deducting the same expenses in more than one country and the Government will strengthen its withholding tax on the royalty payments that allow some firms to shift money to tax havens.
Firms will also be allowed to use losses more flexibly. “But with these new flexibilities in place, we’ll do what other countries do and restrict the maximum amount of profits that can be offset using past losses to 50%,” said Osborne.
“This will only apply to the less than 1% of firms making profits over £5m – and the existing rules for historic losses in the banking sector will be tightened to 25%.
“We’ll maintain our plans to align tax payment dates for the largest companies more closely to when profits are earned, but we will give firms longer to adjust to these changes which will now come into effect in April 2019.”
The reforms will help to create “a modern tax code that better reflects the reality of the global economy” said Osborne and will raise £9 billion in extra revenue for the Exchequer.
“But our policy is not to raise taxes on business,” he said. “Our policy is to lower taxes on business. So everything we collect from the largest firms who are trying to pay no tax will be used to help millions of firms who pay their fair share of tax.”
Osborne confirmed further cuts to the Corporation Tax, which will be reduced to 17% by 2020.
He also announced two new tax free allowances worth £1,000 a year for both trading and property income which he said will help micro entrepreneurs who sell services online or rent out their homes through the Internet.
Commercial stamp duty is also facing an overhaul with the introduction of a zero band rate in purchases up to £150,000, a 2% rate on the next £100,000 and a 5% top rate above £250,000.
There will also be a new 2% rate for those high value leases with a net present value above £5 million.
The new tax regime comes into effect from midnight tonight and there are transitional rules for purchasers who have exchanged but not completed on contracts before midnight.
“These reforms raise £500 million a year. And while 9% will pay more; over 90% will see their tax bills cut or stay the same,” said Osborne.
“So, if you buy a pub in the Midlands worth, say, £270,000, you would today pay over £8,000 in stamp duty. From tomorrow you will pay just £3,000.
“It’s a big tax cut for small firms. All in a Budget that backs small business.”