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in the detail
Last month’s budget included several measures that could help business. CM examines the small print
Corporation tax
The main rate of corporation tax is to be reduced from 28% to 26% from 1 April 2011, with a further 1% reduction to follow in each of the subsequent three inancial years.
As already announced, the small proits rate of corporation tax will be reduced from 21% to 20% from 1 April 2011. In another helpful move, companies will not be treated as associated solely by virtue of relationships between shareholders and relatives.
Reduction in fuel duty
The immediate reduction of 1ppl in the rate of fuel duty, and the deferral of further increases, will provide some welcome relief to those in the transport and haulage industry. A further piece of good news is that VED for HGVs is to be frozen for 2011/12.
Enterprise zones
Twenty-one new enterprise zones are to be created. The irst 10 will be in Birmingham and Solihull, Leeds, Liverpool, Greater Manchester, The Tees Valley, Tyneside, the Bristol area, the Black Country, Derbyshire and Nottinghamshire, and Shefield.
There will also be a zone in London, and 10 other zones will be announced in the summer.
Businesses situated in these zones will be entitled to enhanced capital allowances and other beneits, including discounted business rates and superfast broadband. This should encourage regional investment, as proved to be the case with previous enterprise zones.
Enhanced capital allowances would also help with the purchase of new trucks.
Research and development
There will be improvements to the research and development (R&D) regime for small and medium-sized enterprises, subject to EU state aid approval being obtained. From 1 April 2011, the additional deduction for qualifying expenditure will be increased from 75% to 100% (giving a total deduction of 200%), rising to 125% (giving a total deduction of 225%) by 1 April 2012. Companies developing transport-related technology, such as telematics systems, could beneit from this change.
From 1 April 2012, a company’s entitlement to claim an R&D tax credit from HMRC will no longer be capped at the amount of PAYE and National Insurance contributions it has paid and the £10,000 minimum expenditure requirement will be abolished.
The Chancellor doubled the entrepreneurs’ relief (ER) lifetime allowance, under which qualifying disposals of businesses or business assets are subject to capital gains tax at only 10%, from £5m to £10m. The new limit will apply to qualifying disposals from 6 April 2011.
This further increase means that the lifetime allowance has been raised from £1m to £10m in only a year, providing a signiicant encouragement to entrepreneurs – including a maximum capital gains tax saving for a married couple of £3.6m.
In a further measure to encourage business investment, the tax reliefs for investing in Enterprise Investment Scheme (EIS) companies and Venture Capital Trusts (VCTs) are to be improved, again subject to EU state aid approval being obtained.
The EIS will see the rate at which investors obtain income tax relief increased from 20% to 30%, for shares issued from 6 April 2011, and the maximum annual qualifying investment for an individual will be increased from £500,000 to £1m from 6 April 2012.
The limits on the size of qualifying companies and the amounts they can raise will be increased from 6 April 2012 so that the gross assets limit from EIS and VCT companies will be increased from £7m to £15m. The maximum number of employees an EIS or VCT company can have will be increased from 50 to 250, and the maximum amount a company can raise under the EIS or VCT schemes in a 12-month period will be increased from £2m to £10m.
Other positive measures
The government has recognised the rising cost of fuel for employees by increasing the maximum tax-free mileage allowance payable to employees who use their own cars or vans for business from 40p per mile to 45p per mile. In the longer term, the government is to look into merging income tax and National Insurance.
The not-so-good news
No budget would be complete without some bad news: National Insurance increases will take effect on 6 April 2011, adding an extra 1% for both employers and employees in most cases; new pensions tax relief restrictions, with an annual limit of £50,000, also come into effect on 6 April 2011; the ‘disguised remuneration’ proposals will prevent bonuses and other amounts being paid to employees via third parties such as Employee Beneit Trusts from 6 April 2011; and capital allowance rates are being reduced, notably the Annual Investment Allowance will drop from £100,000 to £25,000 from April 2012. ■