The Key Points

• Entrepreneurs’ Relief lifetime limit doubled
• Corporation tax rates - extra 1% reduction from April
• Capital allowances unchanged
• Research and development expenditure (R&D)
• Business Rates - small business rate relief scheme extended
• Business Premises renovation allowance
• VAT thresholds
• HMRC Time to pay scheme remains
• Investment incentives - VCT and EIS limits increased
• IR35 - to be "modified"
• Administration – "digital by default" online service

Entrepreneurs’ Relief lifetime limit doubled.
The already generous lifetime limit on Entrepreneurs’ relief has been doubled with effect from 6 April 2011. The limit for disposals from 23 June 2010 to 5 April; 2011 is £5 million, and the limit from 6 April 2011 onwards is £10 million. Those taxpayers who have made previous disposals up to or in excess of the limit can make further disposals after 6 April attracting the ER rate of 10% CGT, but previous disposals in excess of the old limit will not be revisited.

Corporation tax rates - extra 1% reduction from April.
The reduction in the rate of corporation tax only applies to tax on profits in excess of £1.5 million in a year. The main rate of corporation tax will now reduce to 26% in April 2011, and not 27% as previously intended. At the same time, the small profits rate of tax commonly paid by small companies will reduce to 20% as previously announced. The main rate of corporation tax will continue to reduce by 1% per annum after that date until the rate reaches 23%.

In consequence of the reduction, the marginal rate on profits between £300,000 and £1.5 million will also reduce, with a marginal rate of 27.5% applying to profits in that range from April 2011, rather than the current rate of 29.75%.

Once the full rate of corporation tax reaches 23%, the marginal rate on profits between £300,000 and £1.5 million will be 23.75%, assuming that the small profits rate remains 20%.

Capital allowances unchanged.

Changes to the rates of capital allowances proposed in June 2010 remain unaltered by the Budget announcements. These changes will come through in April 2012, and will see the Annual Investment Allowance reduce to £25,000, and the rates of writing down allowance reduce from 20% and 10% on the main and long life pool respectively to 18% and 8%.

However, the legislation allowing de-pooling of short life assets has been amended to make it more widely applicable. Currently businesses can elect to keep assets in a separate pool if the asset is not expected to last for more than four years. This allows the business to claim the balance of the cost of the asset for tax purposes when it is sold. This would not otherwise be available if the asset was pooled with other assets. However, in the fifth year if the asset has not been disposed of, it is transferred back inopt the main pool. Businesses will now be able to retain an asset in an individual pool for eight years rather than four years, allowing the business to claim the net cost as a tax allowance on disposal.

This could add somewhat to record keeping requirements for some businesses with a need for multiple “pools” of individual assets, but will in return generate earlier claims to capital allowances.

There has been no change to the categories of assets for which the election is not available – this includes cars.

The special energy efficiency allowance of 100% will be modified by adding and deleting some technologies - this normally happens during the summer recess.

Research and development expenditure (R&D).
The current rate of R&D tax credit for SME businesses is 75% of the amount spent, so that a business can obtain tax relief for 175% of the amount of qualifying expenditure. The definition of SME business for these purposes is specific to the R & D regime.

The rate of relief is to be increased from 1 April 2011 to 100%, so that a business will benefit from 200% tax relief on qualifying expenditure. This means that the tax system will contribute a maximum of £55 for each £100 of qualifying expenditure for businesses in the marginal corporation tax band of 27.5%. Relief at the small profits rate will be worth £40 per £100 spent.

The rate available under the less widely used vaccine research relief scheme will be reduced to 20% for SME's - this relief is available in addition to R & D relief and is currently 40% of the qualifying expenditure (which will remain the rate for large companies). There have been no changes to the R & D rate available to large companies which is currently 30%.

More changes will come in 2012. Where R & D losses are surrendered for payable tax credit relief, the artificial limit of the amount of PAYE and NIC paid in the year will be abolished, as will the minimum spend of £10,000. Further changes will be proposed in response to the Dyson report, to which a detailed response will be published in May.

Business Rates - small business rate relief scheme extended.
The small business rate relief scheme was due to end on 30 September 2011, but has now been extended for an additional year. The scheme provides eligible small business ratepayers with small business rate relief at 100 per cent on properties up to £6,000 rateable value in 2010, (rather than the previous rate of 50 per cent), and a tapering relief from 100 per cent to 0 per cent for properties up to £12,000 in rateable value.

Business Premises renovation allowance.
This allowance provides 100% tax relief for expenditure bringing redundant business premises back into commercial use. The premises must have been empty for at least 12 months and be located in an assisted area (Assisted Areas Order 2007). Although this generous relief is designed to terminate in 2012, it will be renewed for a further five years.

Planning point: Businesses looking for premises would do well to consider this relief which will give up front tax relief at very generous rates for the cost of renovating redundant commercial premises. It is also available to businesses which let the premises once refurbished, provided the premises are in qualifying business use.

VAT thresholds.
The VAT thresholds for both registration and de-registration will increase on 1 April 2011. The new registration threshold will be £73,000, and the deregistration threshold will rise to £71,000. (These were previously £70,000 and £68,000 respectively.) The three line account provision for self assessment returns will continue to be aligned to the VAT registration threshold and will therefore increase to £71,000 for the 2011/12 fiscal year.

HMRC Time to pay scheme remains.
HMRC has confirmed through the Budget announcements that the time to pay scheme will remain available and that the Business Payment Support Service will remain in place to advise viable businesses experiencing temporary financial difficulty.

Investment incentives.
There are a number of changes to EIS and VCT which are intended to stimulate the flow of funds into venture capital schemes providing funds to small and growing businesses. The changes will have effect from April 2012, and the most notable will allow an individual to invest up to £1 million in EIS in any year. The current limit is £500,000.

IR35.
The government believes that to make changes to IR35 in terms of its technical scope would put revenue at risk, so instead will modify the practical operation of the tax by setting up a dedicated helpline designed to give pre transaction rulings, and publishing guidance on those types of cases which HMRC views as outside the scope of IR35. Reviews will be restricted to high risk cases and will be carried out by specialist teams. A Forum of interested parties will be set up to monitor HMRC’s new approach.

Administration – online services.
Businesses will see increasing use of internet only requirements from Government through the promotion of a scheme launched in late 2010 called “Digital by Default”. In particular new businesses registering with the Government will be required to use an online registration process by 2012 – 2013.

Registration for VAT will become a mandatory online process from 1 August 2012, as will notification of changes such as business address. The remaining businesses not presently required to submit VAT returns online (those registered before 1 April 2010 and with turnover of less than £100,000) will be required to file returns online and pay electronically from 1 April 2012.

Disguised remuneration rules tweaked.
The government has amended draft legislation to soften the impact “disguised remuneration” prohibitions will have on employers and individuals who are not using arrangements for avoidance purposes.

Corporate tax changes.
After further changes following consultation, interim controlled foreign companies rules will take effect from 1 January 2011, with further reforms planned for 2012. The foreign branch exemption has been made more generous, but will be more complex too. On corporate capital gains, the rules have been simplified for calculating chargeable gains for companies that are degrouping. Minor changes affecting investment trust companies (ITCs) include a new definition for the companies that are affected.