Member Article

Corporate tax reductions boosts plant and machinery investment

Corporate tax reforms will create a long term investment increases of 1.7% in plant and machinery, according to the University of Oxford.

Research carried out by the prestigious university’s Saïd Business School found that the tax reduction from 28% in 2010 to 21% in 2014 announced by the Government will reduce the cost of capital for large firms by 2.7%.

In the Autumn Statement, the Chancellor brough corporate tax down from 22% to 21%, which will come into effect from April 2014, while the 100% Annual Investment Allowance (AIA) was extended in plant and machinery for the first £250,000 of investment of each company for two years. According to Saïd Business School’s report, these measures towards tax reduction will account for approximately 0.3% of the 1.7% increase in investment for plant and machinery.

For small businesses, the extension of AIA will mean the cost of capital will fall by 10.8% during the current Parliament, while the business school said the rise in eligibility for the AIA is significant however this will not come into effect until 2014. In response to George Osborne’s Autumn Statement, Professor Michael Devereux,

Director of the Centre for Business Taxation commented: ‘Our research has examined the effects of corporation tax on levels of investment, via effects on the cost of capital, and from this it is possible to evaluate the degree to which these tax reforms will have a positive impact on corporate investment.’

This was posted in Bdaily's Members' News section by Miranda Dobson .