Business tax changes following the Emergency Budget

There is no doubt that following the Emergency Budget on 22nd June, most people are feeling financially worse off. But for the small business sector there are some silver linings, albeit temporary in some cases. Here are a few of the main business tax changes:

National Insurance Contributions

An unexpected measure announced in the Budget – taking effect from Budget Day – is the new relief from Employers’ National Insurance Contributions. This is for new business start-ups, based outside of the ‘Greater South East’ region. Relief will be available for the first ten new employees, for their first year’s employment in the new business. The relief will be capped at £5,000 per employee, giving maximum relief of £50,000. This scheme is intended to run for three years until 2013-14. Full details of the scheme will not be available until September 2010.

Capital Gains

One expected change is the increase in the rate for Capital Gains Tax (CGT). It was anticipated that the rate would be closer to the top rates of Income Tax, but it was actually increased to 28% where an individual’s combined taxable income and capital gains exceeds the £37,400 Basic Rate Limit for income tax. The 28% rate will only be applied to the excess gains, so taxable gains falling within the BR Limit will still be subject to the 18% rate.

Another change to the CGT rules is the increase to the lifetime limit for Entrepreneurs’ Relief.

For gains arising after 22 June the lifetime limit is raised to cover gains on business-related assets up to £5m. Gains made prior to the Budget will be covered by the previous limit of £2m. Any gains covered by ER are charged to CGT at 10%.

Corporate Tax

The rate of Corporation Tax for small companies (where profits do not exceed £300,000) will be reduced from 21% to 20% from 1 April 2011. Further annual rate cuts will reduce the main rate to 24% from 1 April 2014. These rate cuts are introduced as part of a general review of the CT scheme that will be undertaken over the next few years.

One likely outcome of this review is that some existing reliefs will be removed – partly to fund these reductions in the headline rates.

Capital Allowances

An example of the sorts of changes that might be made to tax reliefs is the proposed amendments to the Plant and Machinery Capital Allowances rules. These alterations will be effective from April 2012. The two rates of Writing Down Allowances will be reduced from 20% per year to 18% and from 10% per year to 8%.

VAT

The standard rate of VAT will rise to 20% from 17.5% with effect from 4 January 2011 – allowing the Christmas and New Year sales to go ahead at the lower rate. The rise will have a knock-on effect to the special rates for those using the VAT Flat Rate Scheme. Financial accountants are on-hand to offer firms expert advice and guidance on how the Budget specifically affects them and other financial issues. By working closely with accounts, small firms can ensure that their costs are kept to a minimum.



David Woodgate is chief executive of the IFA and a barrister by training. Before joining the IFA he was chief executive of the Institute of Administrative Management and held senior management positions in the City with organisations including Royal Bank of Scotland and NatWest.

Comments

[AltonDelmote]

yes, I agree your condition. Really business tax changes the emergency budget.