Is this a good Budget for business?
Big business maybe but Osborne doesn’t appear to have done anything significant to help the army of owner-managed businesses, the foot soldiers in the UK’s tentative economic recovery, says Paul Webb, tax partner at Robert James Partnership.
In every Budget we have headline measures and then the detail paints a different picture and this one is no exception. We might have a Coalition government and inventive new policies but things are no different really. This was a fiscally neutral Budget in every respect because the Chancellor cannot to do otherwise. But we believe he could have been a bit more giving to SMEs.
One headline grabbing measure was that the reduction in the main rate of Corporation tax. We already knew cuts were on the way but it will be cut by 2% as of April ultimately going right down to 23% giving the UK the lowest rates in the G7. Lovely to hear, but how many owner-managed businesses pay the main rate? Most are paying the small Companies or marginal rates of tax and so this offers little or no benefit. However looking positively, it will be a great incentive for inward investment and making the UK a more attractive base for multinationals. And so for that reason this policy gets our vote of approval.
Entrepreneur’s Relief has been increased (the second time this has risen since last March’s Budget) giving business owners the chance to pay just 10% tax on the first £10million of gains when they exit a business. It is a lifetime allowance and undoubtedly generous. However it has arguably become less accessible and is only really now an option when actually selling a business rather than other exit routes. This is because of the changes to the ESC-C16 regulations. The changes essentially mean that income tax, instead of capital gains tax, is payable on a voluntary winding up of a business where the payment due to the shareholders exceeds £4,000.
The increase to R&D tax credits sounds great but has caveats. It hasn’t become any easier for businesses to gain access to the credit and calculations suggest the increased rates of relief aren’t as generous as they appear. Because of the reductions in corporation tax rates , £100K of qualifying expenditure actually only nets the business owner £5,000 extra in terms of tax relief as opposed to £7,000 if the CT rates had have stayed the same. So the value of the scheme is eroded and business owners really get less than 25% tax relief.
Enterprise Investment Schemes are another case in point. The amount of tax relief has increased by 10% to 30% for a 3-year investment. This makes it more attractive for investors looking for tax efficient options but doesn’t make it any easier for the business owners themselves to access the funding.
The re-introduction of Enterprise Zones will be useful for kick starting economic activity in the more sluggish regions in the UK. Ultimately for the vast majority of owner-managed businesses, the companies with turnovers of around £200K to £1m, there was nothing much particularly generous in the Budget. At least things didn’t become worse.
Follow Paul Webb and the tax team at RJP@taxtalkrjp