Jeremy Beard, partner at accountancy firm haysmacintyre gives his reaction to yesterday’s small business measures.

Since it’s an election year, many believe that Alistair Darling’s Budget is the first of a two part episode giving continued uncertainty, as the final tax changes for the forthcoming tax year are still not fully known. However, the new announcements affecting businesses and their owners were uncontroversial, not extensive and some provided a welcome boost to owners and their businesses.

It’s also welcome news from the Chancellor that Lloyds and RBS – largely owned by you and I – must provide £94bn in new business loans, half of which must be made available to SME’s. But will it make any difference? The availability of funds is one thing, their attitude to risk and criteria for lending is another. The credit adjudication service, set up to help SME’s and examine lending decisions to determine whether they are fair, is probably the key to unlocking the additional funds. Let’s hope that the processes aren’t so bureaucratic that they deter owner-managers from seeking a review should a loan application get rejected. The more significant measures to be introduced are outlined below.

  • Perhaps the biggest surprise was that the top rate of capital gains tax (CGT) remained at 18%, especially with the gap widening between the taxation of capital profits and income where the latter, from April 6, is subject to 50% (36.11% for dividends) for income in excess of £150,000. Although increasing the CGT rate could of course take place in the post-election budget! Another positive change for employee/direct shareholders was the increase of ‘Entrepreneurs’ Relief’ lifetime limit from £1m to £2m which taxes capital gains from qualifying shareholdings at an effective rate of 10%
  • The annual investment allowance (“AIA”) is increased from £50,000 to £100,000 and will help companies who invest in plant and machinery by giving a 100% tax relief on the first £100,000 of qualifying capital spend in the year it is incurred
  • Another helpful announcement is the further extension of the HMRC ‘time to pay’ business support service which can allow taxpayers to spread payments over an agreed period
  • Investment in growing firms is also being encouraged with relaxation of the venture capital scheme (EIS and VCT companies) rules which currently deny companies from qualifying whose trade is not mainly carried out in the UK.  This rule is amended so that the investee company is only required to have a permanent establishment in the UK
  • HMRC, through businesslink.gov.uk, are set to launch a personalised service to start-ups which will provide a range of services. Building on this, HMRC want to extend the online facility, by the end of 2011, to enable SMEs to view their current tax liabilities or repayments across the main taxes. The facility also seeks to reduce the number of times that the same information is given to HMRC.

Unfortunately there were no changes to the already announced increases to National Insurance Contributions (NICs) where most employers (and employees earning in excess of £20,000) will incur an additional 1% on salaries, although this increase is scheduled for April 2011. The chancellor also confirmed that there were no changes to the current rates of corporation tax and VAT. In summary, and as expected, there were very few big changes in this budget. Instead, we’ll have to wait for the post-election budget, where further tax rises will no doubt be introduced!