Companies
With an election around the corner, we should not be surprised that the Chancellor announced a package of measures that provide much needed encouragement to aspirational companies and their owners.
The doubling of the Annual Investment allowance, which gives 100% allowance on capital expenditure, from £50,000 to £100,000 per annum, is top of our list, because this should encourage spending in the many companies who have been holding back on non essential capital expenditure through the recession. This effectively replaces the one year concession of a 40% first year allowance, which will be withdrawn as planned on 31 March this year for companies and 5th April for other businesses.
The owners of all businesses will be delighted to hear about the doubling of the Entrepreneur’s Relief lifetime limit on gains to £2 million, whereby the first £2m on gains made on business assets will be taxed at an effective rate of only 10%. This, combined with the fact that the Capital Gains Tax rate has not increased, despite al the predictions that it would, is likely to encourage the very depressed business acquisitions and disposals market to spark back into life.....which in itself would be good news for solicitors, corporate financiers and lenders......
On the subject of lenders, there is more good news for SMEs in a package of funding measures, including at least half of £94 billion of Government required lending from RBS and Lloyds, a new credit adjudication service (to investigate whether loans have been fairly turned down) and a ‘Growth Capital Fund’ to provide SMEs with capital of between £2m and £10m to finance investment and growth. The HMRC are also continuing the Time To Pay scheme, which provides much needed credit for business tax payments; it is to be extended for the whole of the next Parliament.
Against all this positivity, we must not forget that there is some bad news for smaller businesses programmed for April 2011, when the small company corporation tax rate will be increased by 1% to 22%, and the Employers National Insurance rate will increase by 1% to 13.8%.
All in all, we believe businesses are likely to feel content that they have benefited from the budget, which has clearly been designed to encourage activity and growth.
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The PBR offered businesses help with cashflow, through the extension of both the Business Payment Support Service (BPSS) and the Enterprise Finance Guarantee Scheme (EFGS) – the Budget has now confirmed these extensions. The BPSS is a ‘one phone call’ route to spreading out business tax payments, available where the cashflow difficulty is short-term and the business viable. The EFGS, a 75% Government guarantee on loans to small businesses, will continue for twelve months from April 2010.
The corporation tax rate for small companies will be held at 21% until 2011, but any benefit from this is likely to be paid back within a year by the 1% hike in both the employees' and the employers' National Insurance with effect from April 2011. The Chancellor reiterated his PBR commitment to raise the thresholds so as avoid these changes impacting those earning less than £20,000, but nonetheless cannot avoid the question of whether these rises are really a ‘tax on jobs’?
The Budget confirmed that summer 2010 will see consultation on the introduction of a 'Patent Box' - a new 10% tax regime on profits from UK patents. This sounds as though it should encourage enterprise in the UK, but remains some time off as, disappointingly, the regime will not be introduced before April 2013. More relevant to companies now will be the confirmation of legislative changes to the R&D schemes removing the requirement for SMEs to hold the IP generated by their research.
In Budget 2009 the Government introduced an enhanced first-year capital allowance of 40% for expenditure incurred in 2009-10. This temporary relief will come to an end on 31 March 2010; however, as long as the obligation to pay becomes unconditional before this, the enhanced capital allowance can be claimed, even if the payment is not due for up to four months later.
The taxation of bankers’ bonuses was a hotly debated subject in the build up to the PBR with many regarding city bankers as being largely responsible for the country’s economic problems. The Government responded to public sentiment by introducing a special payroll tax on discretionary bonuses payable to bankers, a move trumpeted as a success story in the Chancellor’s budget speech – having raised £2 billion. Nonetheless, he has confirmed that – as originally announced – the tax is to be temporary and will not continue into the next tax year.
In detail
Entrepreneurs’ relief lifetime allowance doubled
The doubling of the lifetime limit for entrepreneurs’ relief will provide a welcome long-term advantage to owners who have developed their business to the point of sale. The potential value of the relief to an individual is now £160,000 but is still a long way behind the full 10% rate available under taper relief.
Annual investment allowances doubled
The amount of capital expenditure by businesses that will qualify for relief is being doubled to £100,000 per annum from April. This will mostly benefit smaller businesses, who can now obtain a tax deduction for all of their qualifying spend each year, as they seldom spend more than the new limit.
VCT and EIS - to allow investment to non UK businesses
As expected, the Budget proposes to legislate in the forthcoming Finance Bill for four measures agreed with the European Commission to comply with state aid regulations.
Tax rates
The Chancellor announced that there is to be no change to the rate of capital gains tax, corporation tax or VAT. Previously announced increases to income tax and national insurance will proceed as planned.
100% deduction for green land vans (not red lorries, yellow lorries!)
A 100% first year allowance is being introduced from April 2010 over a five-year period for business expenditure on zero-emission goods vehicles. This relief was previously announced in the Pre-Budget Report, but was subject to compliance with the European Commission State aid rules.
Overhaul of penalty regime for late VAT returns
Currently there is a separate penalty regime for the late filing of VAT returns, this is known as the Default Surcharge Regime. Following consultation, this system of penalties will be replaced by separate penalties for late filing and/or late payment.
Consortium relief – amendment to rules
Proposed changes have been made to the consortium relief rules, which should enable certain UK group companies, who are members of a group with a foreign-owned consortium, to access the losses of UK resident consortium companies.
Loans released by close companies
This measure is designed to prevent a close company claiming a corporation tax deduction when it releases a debt due from a shareholder.
Postage costs to rise from next year
Following a recent ruling of the European Court of Justice, HMRC has now revised its policy in respect of which services Royal Mail can exempt from VAT.
Transactions in securities
This is anti-avoidance legislation that can be used by HMRC in certain circumstances involving transactions in securities and tax-intended capital transactions. The Budget announcement confirms that, as expected, the legislation is to be replaced with clearer, more targeted legislation.
Share plans and other employer matters
The introduction of a new additional (50%) rate of income tax on earnings, in addition to the current basic rate of 20% and the higher rate of 40%, had already been announced in last December’s Pre-Budget Report and therefore should not have surprised employers.
Capital distributions
Following the introduction of the dividend exemption regime in last year’s Finance Act, most dividends received by UK companies from 1 July 2009 are exempt from UK corporation tax. However, relief only applies to dividends that are not capital in nature. There is concern that certain distributions could be treated as capital and therefore not exempt. Retrospective legislation will treat most distributions as exempt.