Budget 2011

The Budget was intended to be “fiscally neutral”, with revenue raising coming mainly from the bank levy and tackling tax evasion and so the scope for any major changes was always going to be limited. The Chancellor did however manage to raise a few good news items for businesses and entrepreneurs. We summarise below some of the main announcements.

Budget Video
BHP has recently launched its new You Tube channel BHP Accountants. Please click here to see Zoe Roberts, Head of Corporate Tax, present an overview of the Budget 2011.

Enterprise Investment Schemes
To encourage investment by the private sector, Income Tax relief available under the Enterprise Investment Scheme will increase to 30% from 6 April 2011. In addition, from 6 April 2012, the size of company that will qualify, the size of investment that can be raised and the annual amount an individual can invest will all be increased.

Entrepreneurs’ Relief
The Finance Bill 2011 will double the lifetime limit on gains qualifying for Entrepreneurs' Relief from £5 million to £10 million for gains arising on or after 6 April 2011. Gains arising before will be subject to the previous lifetime limit. There are no other changes to the rules regarding qualification criteria for the individual or the company.

Corporation Tax Rates
As of 1 April 2011 the main rate of Corporation Tax will be reduced from 28% to 26%, an additional 1% reduction from the figure announced in last year’s Emergency Budget. As previously announced, the small rate of Corporation Tax will be reduced from 21% to 20%.

It is also proposed that the main rate of Corporation Tax will be reduced by a further 1% every fiscal year from April 2012 to April 2014 at which point the main rate of Corporation Tax will be 23%, the lowest tax rate in the G7.

Research & Development (R&D) Tax Relief
Subject to State Aid approval, legislation will be introduced in the Finance Act 2011 to increase the additional deduction under the small companies scheme for qualifying R&D expenditure from 75% to 100% with effect from 1 April 2011 and by a further 25% by from 1 April 2012. This will increase the total deduction to 200% and 225% respectively. A qualifying R&D loss can also be surrendered to the Exchequer in exchange for a repayment. The amount of the repayment will increase to 28% and 31.5% of the original spend respectively.

It is proposed that the restrictions limiting the relief to the amount of PAYE and NICs paid by a company and the minimum £10,000 expenditure requirement be abolished. Additionally, the rules regarding work performed by subcontractors are to be revised for both the large and small companies R&D reliefs. These further changes will be subject to consultation.

Small business rates
The small business rate relief holiday due to end this year will be extended by one year to 1 October 2012. Eligible businesses occupying properties with rateable values of up to £6,000 will pay no business rates for a further year from 1 October 2011 and those with rateable values of up to £12,000 will continue to receive significant reductions.

Enterprise Zones (EZs)
The Government has announced the introduction of 21 new EZs in which lower business rates and tax reliefs are available to encourage businesses to relocate to these areas. It has been announced that Sheffield, Leeds and Derbyshire will be in the first ten of these, with further details about the exact areas to be released later.

The benefits initially available for businesses within EZs will be up to a 100% business rate discount, radically simplified planning approaches and superfast broadband. Consultation will take place to determine if there is scope to introduce enhanced Capital Allowances and government funding.

NI & Income Tax merge
As had been widely leaked in the weeks leading up to the Budget, the Chancellor has announced that a consultation will take place this year on integrating the operation of Income Tax and NICs. This measure is designed to address complexity in the tax system and to ease the burden of compliance for businesses and individuals. It is also long overdue recognition that NICs are nothing more than a tax by another name.

The consultation will consider the options, stages and timing of reform. The Chancellor has announced that the contributory principle will be maintained and that NICs will not be extended to those above State Pension Age, or to other forms of income such as pensions, savings and dividends. Whilst this measure is to be broadly welcomed, any reform will be complex, and so is unlikely to take effect in the near future.

Inheritance Tax - bequests to charity
It has been announced that a reduced rate for Inheritance Tax (IHT) will apply to the taxable estate of individuals in respect of deaths occurring on or after 6 April 2012 where 10% or more of the deceased’s estate is left to charity. The calculation of the 10% will apply to the value of the deceased estate after deducting IHT exemptions, reliefs and the nil rate band. The rate of IHT to be applied to the taxable estate at death will be reduced by 10% of the current rate, so the reduced rate will be 36% (40% less 10% of 40%). The Government will issue a consultation document on the detailed implementation of this measure before the summer.