Finance Bill measures of interest to smaller firms

FENELLA MARTIN-REDMAN, tax partner at Baker Tilly’s East Anglia office, points to potentially useful tax breaks for small and medium sized businesses

THE Chancellor’s recent Budget and the publication of the Finance Bill include a number of announcements which should be of interest to small and medium sized businesses.

In the area of capital allowances, broad reductions were announced last year, which will take effect from 2012. These include:

n A restriction in the rate of allowances from 20% to 18% and 10% to 8%; and

n A reduction of the Annual Investment Allowance from �100,000 to �25,000.

However, the extension of the short life asset rules will offset to some extent the reductions due in April 2012.

Regarding Research & Development tax credits, the enhancement of R&D relief is to be phased in over the next two years which for small and medium-sized enterprises (SMEs) will be of interest if the business is investing in developing new technologies.

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The R&D tax credits for SMEs will be increased to 200% of qualifying expenditure with effect from April 2011, rising again in 2012 to 225%

There are also changes in the Enterprise Investment Scheme and Venture Capital Trusts to encourage investment in growing businesses.

The Chancellor clearly hopes that enhancing the tax reliefs for individuals investing in EIS and VCT shares will stimulate investment in qualifying trading companies. The key changes include:

n From April 2011, Income Tax relief for individuals investing in EIS is increased from 20% to 30%; and

n From April 2012, companies will be permitted to raise �10million per year instead of �2m and the size restrictions will be relaxed, allowing companies with fewer than 250 employees and gross assets of less than �15m to issue qualifying shares.

Finally, in the case of Entrepreneurs’ Relief, the doubling of the lifetime limit for from �5m to �10m is unexpected good news for owners of growing businesses and the maximum potential tax saving is now �1.8m. Furthermore, a couple who jointly own an eligible family business may both claim the relief.

However, the news was not all good. Nothing has been done to address the 5% shareholding requirement which denies relief for many employee share and option holders; and the rules remain inconsistent between different types of business and owner.