Budget comment: Some good news for entrepreneurs

THERE were few big surprises in the Chancellor’s speech yesterday.

Tax-wise, the only options for making real inroads into reducing a deficit are those with the widest application ? basic rate Income Tax, National Insurance or VAT.

The Chancellor has plumped for the latter, increasing the rate from 17.5% to 20%. Of the options it was, politically, the lesser evil.

Whilst this will provide the biggest single tax grab, the next biggest share will come from the banks via a bank levy. Politically this is an easy sell to the general public. The risk, of course, lies in how the banks react.

Of rather more interest to many businesses and businessmen will be the changes to Corporation Tax and Capital Gains Tax. The standard rate for Corporation Tax will be reduced from its current 28% to 24% in annual reductions of 1% over the next four years. Additionally, rather than the previously announced increase to 22%, the small company rate will fall to 20% next year.

It goes without saying that almost all companies will view this news as positive, especially in the current climate. They have been given both tax reductions and (importantly) certainty over the regime for some years to come.

The argument is that this will boost their ability to compete, make money and help the economy grow. The price to be paid is a reduction in capital allowances which, frankly, is not as severe as might have been expected. Overall most companies will be happy with the changes.

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It is also worth stating that with personal taxes at particularly high rates, the lure of incorporation will become even stronger now and I suspect that we will see another rush in that direction from many businesses. Certainly it is an alternative that should again be considered by those who are not currently incorporated.

Finally, Capital Gains Tax. The two major changes here were the increase in the rate from 18% to 28% for higher rate tax payers and the increase in availability of Entrepreneur’s Relief which is now available on the first �5million of gain as opposed to the first �2m.

The increase to 28% was less than anticipated but there is good reason for this. The fact is that raising CGT rates tends to reduce the tax take – people stop undertaking the transactions. Essentially there was no economic case to put the rate any higher.

The Entrepreneur’s Relief change is interesting. Combined with the rate increase, the relief may be worth as much as �900,000 to an individual now. Only three months ago it was worth a maximum of �80,000.

All the more reason to make sure your business is structured to take maximum advantage!