Jeremy Corbyn, corporation tax

Accountants say Labour muddled up difference between turnover and profit in plans to increase corporation tax for small business

Accountants have raised their eyebrows at an unforced schoolboy howler in Labour’s manifesto, which the party has hurriedly gone in and fixed.

Labour has announced plans to increase corporation tax to 26 per cent for businesses, compared with today’s rate of 19 per cent.

Within this, Labour originally proposed that small businesses would pay corporation tax at a lower rate of 21pc if their turnover is over £300,000.

If kept in, this would have created an anomaly where a small business making a tiny profit on turnover of £300,000 would pay corporation tax, while a competitor making a fat profit on much lower turnover would escape tax.

However, after realising they had muddled up turnover and profit, Labour has since published a revised document outlining its plan to reintroduce a small profits rate for firms with profits greater than £300,000.

>See also: Sajid Javid warns Labour will extend inheritance tax to family businesses

Robert Salter, director at Blick Rothenberg, the accounting and tax advisory company, told The Times: “One must worry whether the initial communication in this regard indicates a potential lack of awareness about businesses and the difference between turnover and profit.”

Tim Walford-Fitzgerald, a tax partner at the accountant HW Fisher, added: “It was a surprise to read this in the manifesto, as corporation tax is usually a tax on profits, but then it’s not unusual for chancellors to fiddle around in order to tax as broadly as possible.”

Jonathan Samuels, chief executive of lender Octane Capital, said: “Confusion of turnover and profits is something you’d expect to crop up in a GCSE business studies exam, not a government manifesto. If businesses are worried about the prospect of a Labour government, this kind of schoolboy error suggests they have reason to be.”

Labour got into another muddle earlier this week when shadow small business minister Bill Esterson wrongly assured freelancers that the party would stop IR35 tax changes being rolled out in April, bringing thousands of contractors within PAYE. The party has since said that, along with the Conservatives and the Liberal Democrats, it will review IR35 being extended to the private sector.

Further reading on general election

General Election 2019: what the parties say about small business

 

 

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