Budget 2008: Business support and taxes

The Chancellor confirmed the cut in the main rate of Corporation Tax from 30 per cent to 28 per cent, effective from April.

However, in 2008-09 the Small Companies rate will increase, as pre-announced, from 20 per cent to 21 per cent.

As widely predicted, Mr Darling said that the fuel duty increase of 2p per litre, due on 1 April, has been postponed for six months.

What, however, will be coming into effect next month are the changes to Capital Gains Tax announced in the pre-Budget report and in January – the introduction of a flat rate charge of 18 per cent and the entrepreneurs’ relief on lifetime sales of assets of up to £1million.

The upper earnings limit for National Insurance Contributions is to rise from £670 to £770 per week. The additional £100 a week in earnings will be subject to a NIC charge of 11 per cent rather than 1 per cent.

As from April, capital allowances for plant and machinery will come down to 20 per cent, while allowances for long-life assets will increase to 10 per cent. First-year allowances for small and medium-sized enterprises will be replaced by a new Annual Investment Allowance of £50,000 for most businesses regardless of size, giving relief on 100 per cent of the first £50,000 of expenditure.

From April 2008, the rate of research and development tax credits will rise from 125 per cent to 130 per cent for large companies and from 150 per cent to 175 per cent for SMEs.

On the vexed issue of income shifting, a tax arrangement used by a number of husband-and-wife businesses, the government reiterated its belief that it is unfair that some individuals can arrange their affairs to gain a tax advantage by shifting part of their income to another person who is subject to a lower rate of tax.

But the Treasury has conceded that a further period of consultation will help make sure any legislation aimed at stopping income shifting is clear and unambiguous. The government now plans to introduce legislation through the 2009 Finance Bill and will not put any rules in place as early as April 2008.

The Chancellor went out his way to emphasise the government’s small-business-friendly credentials, perhaps stung by a series of attacks on its recent record by small business groups.

Mr Darling said that “the UK is one of the best places in the world to do business” and that the government is committed “to consultation with business to maintain a stable business tax system that remains responsive to business’ needs and internationally competitive”.

To give substance to the claim he announced a package of short-term measures aimed at offering small businesses access to funding and resources. These include a temporary increase of 20 per cent in the amount of finance available through the Small Firms Loan Guarantee scheme, and relaxation of the rules on how long a business has been trading in order to qualify for the scheme.

Also in place will be a new capital fund to support businesses run by women.

The Chancellor announced an increase in the Enterprise Investment Scheme's investor limit from £400,000 to £500,000 in any one tax year, and an increase in the value of the share options an individual can hold under the Enterprise Management Incentive scheme from £100,000 to £120,000.

A committee is to be set up to advise the government on ways of helping SMEs compete for public sector projects (the government wants SMEs to pick up a third of all public contracts in the next five years).

Red tape also came under scrutiny, with the Chancellor promising that the Business Secretary would consult on radical new proposals to place a limit on the amount of regulation that can be imposed by Whitehall departments.

The government has also announced the next stage in its programme of simplifying business taxes. These cover making VAT rules and administration easier and simplifying the associated companies rules relating to the small companies rate of Corporation Tax. There is to be a review that will look at how to simplify the Corporation Tax calculations and returns for smaller companies.

The climate change levy (CCL) rates will rise with current inflation from April 2009.

In line with changes to Vehicle Excise Duty and the Budget’s green commitments, the existing capital allowance treatment for business cars is to be replaced with an emissions-based approach.