Rates of tax

The main rate of Corporation Tax (for companies with profits over £1.5m) remains 28%, as it has been since 1 April 2008. The rate for the year commencing 1 April 2011 has also been confirmed at 28%.

The small companies rate (for companies with profits up to £300,000) was originally intended to rise from 21% to 22% from 1 April 2009, but this has now been deferred twice to 1 April 2011. The rate, and the marginal relief for profits between £300,000 and £1.5m, remain unchanged.

Loans to participators

Where a closely-controlled company makes a loan to one of its participators (usually a shareholder), it is required to "loan" one-quarter of the amount to HM Revenue & Customs. This is repaid to the company if the loan is repaid by the participator or is written off. If the loan is written off, the participator pays income tax as if the write-off was a dividend. It has been suggested that tax law allowed the company to deduct such a write-off as a corporation tax expense - not normally possible for a dividend - but the law has been tightened up in the Budget with effect from 24 March 2010.