§ Mr. David ShawTo ask the Chancellor of the Exchequer what would be the cost to the Exchequer of exempting from corporation tax(a) the first £1,000 of profits and (b) the first £5,000 of profits in respect of (i) small limited companies and (ii) all limited companies; and if he will state the equivalent income tax cost for unincorporated businesses.
§ Mr Maude[holding answer 6 March 1992]: On the assumption that a single exempt amount would be available to a company group and would be divided equally between the members of the group, the direct corporation tax cost is tentatively estimated to be:
Exempt amount Companies liable at the small companies rate £ million All companies £ million 1,000 20 30 5,000 100 150 The equivalent income tax cost in a full year for unincorporated businesses is of the order of £600 million for an exempt amount of £1,000 and £2.5 billion for an exempt amount of £5,000.
These estimates are based on the existing distribution of taxable profits and therefore exclude probable behavioural changes. These cannot be quantified readily, but they are likely to increase the cost substantially.