The highlights at a glance
Corporation Tax rates
The main rate of Corporation Tax reduced from 28% to 26% from 1st April 2011, with a subsequent reduction in each of the following three years so that the rate from 1st April 2014 will be 23%. This represents an additional 1% reduction in the proposed Corporation Tax rates announced in the emergency Budget in June 2010.
With effect from 1st April 2011 the small companies’ rate reduced to 20%.
Capital allowances
From 1st April 2011 a short-life asset election can now be made where an asset is likely to be sold or scrapped within eight years of its acquisition. This could be beneficial for assets that depreciate faster than the rate of capital allowances. Where the asset is sold or scrapped within the eight year period, capital allowances equal to the net cost of the asset are given to the business during the period of ownership of the asset. This is an extension of the current short-life asset election where the asset must be sold or scrapped within four years to obtain the accelerated relief.
In summer 2011 the list of assets qualifying for 100% capital allowances under the Enhanced Capital Allowances Scheme for Energy Saving Technologies will be updated. This will simplify the qualifying criteria for some assets and include a new addition for energy efficient hand dryers.
VAT
The VAT registration threshold increased to £73,000 and the deregistration threshold to £71,000.
Research and Development (R&D) tax relief
The Chancellor announced that, subject to EU state aid approval, the tax deduction for qualifying expenditure on research and development by SMEs will be increased. The current rate of 175% of the expenditure increased to 200% from 1st April 2011 followed by a further increase to 225% from 1st April 2012.
Subject to consultation the following changes will be introduced in 2012:
The requirement to incur a minimum of £10,000 per annum of qualifying R&D expenditure will be removed.
The rule limiting the repayable R&D credit under the SME scheme to the amount of Income Tax and National Insurance paid by the company will be abolished.
Changes to the rules for R&D relief on work done by subcontractors under the large company scheme.
Anti-avoidance
The Government continues to introduce new measures to counteract anti-avoidance and close the tax gap. Details of HM Revenue & Custom’s (HMRC) new anti-avoidance strategy have been published together with a number of proposals for strengthening tax legislation. In addition, specific measures are being introduced to close known loopholes.
Entrepreneurs’ relief
The enhancement of entrepreneurs’ relief, which reduces the rate of Capital Gains Tax paid by taxpayers on qualifying disposals to 10% (from a maximum rate of 28%) for certain disposals of business assets or shareholdings, is significant: the increase in the lifetime allowance from £5m to £10m from 6th April 2011 means the relief will then be worth £1.8m compared to £900k.
Other matters
A number of other measures have been announced:
HMRC will continue to provide advice and time to pay to businesses experiencing temporary financial difficulty.
The small business rate relief holiday will be extended for one year from 1st October 2011.
Business rate discounts of up to 100% for five years will be given to businesses located in 21 new Enterprise Zones.
