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Budget 2013: Tax reliefs tap into entrepreneurial spirit

SMALL BUSINESSES were handed a “big boost” by various tax reliefs, exemptions and a headline cut in corporation tax announced by the chancellor in his Budget speech.

The headline grabbing 1% cut in corporation tax to 20% from April 2015, creating the lowest business tax of any major economy in the world, will be welcomed by businesses of every size. Yet, the accompanying move to simplify the corporation tax system is particularly relevant for small businesses struggling under the “burden of compliance”, says Linda Mounter, tax manager at BDO.

George Osborne said the cut sent a message that “Britain is open for business” and meant the government had achieved “the largest reduction in the burden of corporation tax” in the UK’s history.

“By merging the small and company and main rates at 20p, we will abolish the complex marginal relief calculations between them, and give Britain a single rate of corporation tax for the first time since 1973,” Osborne said during his address to parliament.

Ian Fleming, managing director at Alvarez and Marsal Taxand, says the rate cut “goes hand in hand with the simplification of the UK tax system ensuring that this country continues to encourage investment from overseas.”

There were a number of reliefs aimed specifically at encouraging investment in Britain’s smallest businesses. From April 2014, businesses and charities will be given an employment allowance to take the first £2,000 off employer national insurance contributions. The move is intended to help small businesses that want to hire their first employee or expand their workforce.

According to the chancellor, 450,000 small firms will pay no job tax at all. “This represents circa 10% of the SME’s business population,” says Neil Sevitt, head of SME, RSM Tenon. “This measure goes beyond the pre-Budget speculations and is a major macro-economic incentive for the creation and retention of jobs, a significant part of which is created in the SME sector.”

The chancellor also announced an extension to the capital gains tax exemption under the Seed Enterprise Investment Scheme. Any investors in the scheme – which offers 50% income tax relief on investments made into small, early-stage companies – that make capital gains in 2013/14 will receive a 50% relief when they reinvest those gains into seed companies in either 2013/14 or 2014/15.

Patrick Harrison, a tax partner at PKF, hailed the extension as “smart move” at a time when many businesses are struggling to get hold of debt funding from traditional sources.

“Sensible tax incentives can help plug the funding gap provided the Treasury gets the balance right,” Harrison said.

In further support of high growth companies, Osborne said the government will abolish stamp duty on shares traded on growth markets such as AIM from April 2014. “In parts of Europe they’re introducing a financial transaction tax, here in Britain we’re getting rid of one,” said Osborne.

According to the government, the move will directly benefit hundreds of smaller quoted UK firms, lowering their cost of capital, helping to promote jobs and growth.

“The removal of stamp duty on trading in AIM quoted stocks is a very significant event for the growth market – alongside the EIS and VCT tax breaks, it is probably one of the biggest fiscal events in the market’s history,” says Philip Secrett, partner and head of AIM and smaller listed companies at Grant Thornton.

Osborne also announced an increase in the ‘above the line’ (ATL) credit for large company R&D investment to 10% from April 2013. The ATL credit, designed to make R&D relief more visible to those making investment decisions and provide greater cash flow support to companies with no corporation tax liability, would be “attractive to finance directors who control company budgets,” says Fleming at Alvarez.

The move will especially benefit companies operating in high end technology sectors such as automotive, life sciences and aerospace.

“This credit will provide vital extra funding for businesses that may now be able to pursue projects that would otherwise have been abandoned,” says Diarmuid MacDougall, who heads up PwC’s Patent Box and R&D teams.

“It will make the cost of doing R&D in the UK lower, thereby making our R&D centres more globally competitive, which in turn should help us attract and secure vital skills. Additionally, smaller businesses (less than 500 employees) will for the first time get a payable credit on R&D for customers.”

Other specific sectors to receive support included the creative industries – with Osborne pledging to provide further support for the visual effects industry through the tax system – and the natural resource sector through a new tax allowance for shale gas fields, while the haulage industry will have welcomed the scrapping of the planned September fuel duty rise.

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