Companies will pay just 17 per cent corporation tax on their profits by 2020, the lowest rate in the G20.
This is a long way from 2010 when small companies paid 21 per cent corporation tax while larger firms paid 28 per cent.
Now all companies pay 20 percent and the rate will fall to 17 per cent by 2020, giving businesses a big saving.
So how can this help your business?
More cash in your company
The Treasury says the corporation tax cuts will lower the tax bills of 1.1 million businesses that pay corporation tax.
The changes, announced in chancellor George Osborne’s Budget, ultimately means businesses have more money to invest and spend on staff and wages which will boost the labour market and wider consumption.
This also will eventually boost the Treasury’s coffers of course as they would get more national insurance and income tax from more people in employment being paid a higher wage.
Consider the way you structure your business
If you operate as a sole trader you will pay income tax on your earnings, so depending on if you are a basic or higher rate taxpayer, you could end up giving the taxman 20 or 40 per cent of your hard-earned cash.
In contrast, you would currently pay just 20 per cent on your profits as a limited company. The corporation tax rate will fall to 19 per cent from the 2017/18 tax year, then 18 per cent from 2020/21.
This may make it more tax efficient to operate as a limited company.
The downsides of a corporation tax cut
Remember corporation tax isn’t the only bill you will need to pay the taxman.
You need to take money out of the business somehow and the government has changed some of the best ways directors used to be able to take money out of a business using dividends.
Up until the end of the last tax year in April 2016, if you were paid in dividends there would be a 10 per cent tax charge for basic taxpayers and 35 per cent on the higher rate tax band.
But a 10 per cent tax credit meant basic rate taxpayers had nothing to pay while those in the higher rate category really paid 25 per cent.
This has all changed since the start of the new tax year, and could end up costing business owners more in tax if they are paid in dividends.
Now everyone gets a tax-free dividend allowance of £5,000, but once you earn more there is a 7.5 per cent charge for basic rate taxpayers, 32.5 per cent on the higher rate and 38.1 per cent for additional rate payers. The tax credit has been abolished.
So a business owner paying the basic rate now has to pay 7.5 per cent on any dividend income above £5,000, while previously the tax credit meant there was no charge. Higher rate taxpayers would pay 32.5 per cent instead of 25 per cent.
This could actually make it less tax-efficient to be paid in dividends, meaning some businesses could have to consider how much income to take and whether it is worth being incorporated.
Remember these cuts have to be funded by the government somehow so watch out for stealth taxes.
A recent report by the IFS warns that many recent boosts to small businesses and individuals are balanced by an increase in indirect stealth taxes such as insurance premium tax, cutting public spending or increases in stamp duty for landlords.
The Institute for Fiscal Studies found government receipts for corporation tax and income tax receipts have fallen. Now just over half, 56.2 per cent of the population pay income tax, down from 65.7 per cent in 2007. Corporation tax receipts have fallen from 25.8 per cent to 15.2 per cent over the same period.