Business and the Budget
The budget bought some unexpected good news for business owners in the form of 'entrepreneurs relief' which in effect gives tax relief on the capital gains payable on certain types of businesses along with certain business related assets. This relief was actually introduced around two years ago and the ceiling of gains has this year been doubled to £2 million. If a business has already realised gains in excess of £1 million there won't be any retrospective tax reduction but there will be a beneficial addition limit of £1 million going forward.
The chancellor did not announce any significant changes to corporation tax in the budget and the and the mainstream rate will remain at 28% for the financial years of 2010 and 2011. The rate for small companies will benefit from a rate freeze of 21% for another year.
The AIA, or Annual Investment Allowance has been doubled to £100,000 from April 2010. This allowance gives 100% initial tax relief for investment in plant machinery. When it is the case that the chargeable period for a business comes on either side of the date of increase, which is 1st April for income tax and 6th April for corporation tax, the annual investment allowance for the year is calculated accordingly. It could be considered to be a prudent decision to stage major purchases over a period of two years or more to make the most of the annual investment allowance rather than making a single large investment. As the conservative party have stated that they would be in favour of reducing this allowance it could be considered that this is an incentive not to delay if you are considering this route.
The new additional higher tax rate of 50% has had a effect on the calculations which have to be taken on board when deciding on dividends, salary or pension contributions for those with an income of more than £100,000. For someone who finds themselves in this position and who is not governed by the IR35 personal company rules, the choice of a dividend payment could well be the most efficient. It should be realised though that a pension contribution would avoid any NIC and immediate tax costs. This is a decision that should be considered carefully because the wrong one could very well prove to be costly and expert advice would be very highly recommended.
