There was mixed news for fast growth technology and digital businesses in today’s Emergency Budget. Headlines were as follows:
Corporation tax rates will be cut from 21% to 20% for small companies ie those with taxable profits up to £300,000, with effect from 1 April 2011. Large companies will benefit from tax rate cuts from 28% to 27% in 2011 and a 1% decrease each year to 24% in 2015. A hugely competitive rate.
Capital gains tax for entrepreneurs was actually enhanced with the 10% effective CGT rate preserved under Entrepreneurs’ Relief and the lifetime allowance increased from £2m to £5m. It was disappointing that more was not done to extend the benefits of Entrepreneurs Relief to employees holding share options, many of whom will be taking a career risk sticking with fledgling startups (rather than taking ‘safer’ jobs) so they deserve to be rewarded like the founder shareholders.
New start ups in the north west will benefit from a national insurance contributions holiday for the first year of trading for the first ten employees. The scheme will run for 3 years and could save businesses up to £50,000. It will kick off in September this year but businesses started in the interim may qualify.
Capital allowances will be reduced to fund the above corporation tax rate with the Annual Investment Allowance for investment in say computer equipment and office furniture reduced from £100,000 to £25,000 from April 2012. There are further reductions for investment in fixed assets so businesses should seek to accelerate planned capital spend before April 2012 when the changes take effect.
VAT increases from 17.5% to 20% from 4 January 2011 should have minimal effect on most B2B businesses as the increased VAT rates should wash through in most cases. B2C businesses will be hit next year although a 20% VAT rate remains competitive globally.
R&D tax credits will be preserved which is great news and a review will take place in line with the Dyson review which may enhance the relief. Disappointingly the planned video gaming relief will be withdrawn – why this is the case is baffling to me as the video games industry is one in which we already have a competitive advantage and the likes of Canada already have such tax breaks.
A Regional Growth fund along with pressure on banks to lend to SMEs should assist in ensuring that businesses have much needed access to funding.
Overall, the Emergency Budget was positive for businesses with a clear plan for growth and stability over the next 5 years.
What’s your view?