Time will tell for Budget

PETER HARRUP of PKF assesses whether George Osborne’s ‘Budget for growth’ will deliver its intended results for the economy

THE Chancellor has tried to set the agenda for the year ahead with his 2011 Budget announcements.

These included a number of welcome measures aimed at driving growth in the economy but will they provide your business with a boost for the year ahead?

The cut in fuel duty was the headline-grabbing giveaway for businesses and families alike, but watch out for the two duty increases planned for 2012.

The early cut in the main rate of Corporation Tax, to 26% from April 1, 2011, was also good news and further 1% reductions are scheduled for the following three years so that the rate will fall to 23% by April 1, 2014. The small companies’ rate remains at 20% but any company exploiting patents first commercialised after November 29, 2010, will pay 10% tax on profits from these sources from April 2013.

Extra tax relief for investment in research and development projects by SMEs is to be available with the deduction increasing to 200% for expenditure incurred from April 1, 2011 and to 225% from April 1, 2012. However, this is subject to EU state aid approval.

The enterprise investment scheme rules for the qualifying company will be relaxed from April 6, 2012 so that, in particular, the maximum limit on gross assets held by the investee company before any investment will increase to �15million and the employee limit to 249. This should open up this type of funding to many more companies (although those which base their trade on solar feed-in tariffs ‘or similar subsidies’ are to be excluded unless commercial electricity generation commences before April 6, 2012.

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The Government’s plans to introduce new enterprise zones could be good news in time but none have yet been announced for the East of England.

Businesses with fewer than 10 employees are to be exempted from new “red tape” for the next three years and the Government seems to have set the tone for the future with some limited simplification of employment law now and more planned.

At the other end of the business lifecycle, the lifetime limit of capital gains qualifying for entrepreneurs’ relief will increase from �5m to �10m for qualifying disposals after April 5, 2011. This tax break is now worth up to �1.8m per person by cutting the normal capital gains tax rate from 28% to 10% on qualifying disposals from April 6, 2011.

Only time will tell if these and other measures provide a sufficient national stimulus for growth as they have to be weighed against increases in National Insurance, the continuing 50% Income Tax rate, the 20% VAT rate and on-going difficulties many businesses have in borrowing to invest. However, focusing on the new opportunities is the best way to ensure that your business can grow this year.