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Gordon Brown delivered his eleventh, and probably his last, Budget Statement yesterday (21st March). Experts throughout the tax profession have largely commented that this was a "political Budget", doing little but create more red tape for small businesses to deal with.

Nick Goulding, Chief Executive of the Forum of Private Business (FPB), said: "The Chancellor has used smoke and mirrors to disguise the fact that there is nothing in this Budget to support small businesses. In fact, the resulting confusion created by some of his initiatives will serve only to increase the red tape burden."

The Chancellor claimed that his Budget was one of "prosperity and fairness for families" but many are saying that it contained little to achieve the same for smaller businesses. Tax cuts aimed at larger businesses will do nothing to ease the burden for the majority of the private sector. The Chancellor announced a reduction in the rate of corporation tax (CT) from 30% to 28% from 2008/09, but also increased CT for smaller companies to 22% by 2009 (from 19% to 20% in 2007/08, 21% in 2008/09 and 22% in 2009/10).

Bernard Sweet, Director of Corporate Tax at Chiltern, said: "The Chancellor has announced that his measures will be "revenue neutral". Businesses will need to examine the detail of this year's changes closely to ensure that they do not suffer from any overall reduction in business tax relief."

Other Budget highlights include:

Income Tax

• The basic rate of income tax will be reduced to 20% from 2008/09.
• The starting rate of income tax (currently 10%) will be removed for earned income and pensions but will continue to be available for savings income and capital gains.
• Age-related personal allowances for those aged 65 to 74 and 75 and over will be increased by £1,180 over indexation.
• The personal allowance for those aged 75 and over will increase to £10,000 in 2011-12.
• Legislation will be introduced in Finance Bill 2008, operative from 6 April 2008, to simplify the system of taxation for individuals who own foreign shares. Individuals in receipt of dividends from UK-resident companies are entitled under current law to a non-payable dividend tax credit. From 2008 individuals in receipt of dividends from non UK-resident companies will also be entitled to a non-payable dividend tax credit, subject to certain conditions.
• Legislation will be introduced in Finance Bill 2007 to define a “Managed Service Company“. It will deem income received by individuals providing their services through MSCs, not already treated as employment income, to be employment income. The consequence of this will be that MSCs will have to operate Pay As You Earn (PAYE) income tax and Class 1 National Insurance contributions on all payments received by individuals in respect of services provided through such companies.
• A 2% discount is to be introduced from 6 April 2008, for company car drivers who drive a car which is capable of being run on E85 fuel.
• From 6 April 2008, it will be possible to invest up to £3,600 per tax year to a cash ISA, and up to £7,200 per tax year into a stocks and shares ISA, subject to an overall annual subscription limit of £7,200 to both ISAs.
• Minor benefits provided by former employers for retired former employees will be excluded from taxation.
• The inheritance tax (IHT) pension rules will be amended to allow the exemption from IHT charges to operate within the same time frame as permitted by the rules of a registered pension scheme for payment of lump sum benefits following the death of a scheme member.

Capital allowances

• The temporary 50% rate of first-year allowances for small enterprises will be extended for a further 12 months.
• A new annual investment allowance for the first £50,000 of expenditure on plant and machinery in the general pool will be introduced from 2008-09.
• From 2008/09 the rate of writing-down allowances for plant and machinery in the general pool will be reduced from 25% to 20%.
• From 2008/09 the rate of writing-down allowances on long-life asset expenditure will increase from 6% to 10%.
• From 2008/09 writing-down allowances on industrial and agricultural buildings will be gradually phased out, with final withdrawal of both regimes by 2010/11. To prepare the way for final abolition, most balancing adjustments, and the recalculation of writing-down allowances on sale, will effectively be withdrawn from 21 March 2007.
• From 2008/09 the rate of writing-down allowances on certain fixtures integral to a building will be set at 10%.
• From 2008/09 a payable tax credit for losses resulting from capital expenditure on certain designated “green technologies” will be introduced.
• The current Landlords Energy Saving Allowance (LESA) is being extended. Floor insulation will be added to the energy saving items which qualify for the allowance; a deduction of up to £1,500 will be available for each property rather than for each building; and the allowance will be available until 2015.

R&D tax credits

• From 2008/09, the enhanced deduction available to SMEs in respect of qualifying research and development (R&D) expenditure will increase from 150% to 175%. The value of the payable credit will remain broadly at its current level (24% of qualifying expenditure).
• From 2008/09 the enhanced deduction available to large companies in respect of qualifying R&D expenditure will increase from 125% to 130%.

Stamp Duty Land Tax

• Legislation will be introduced in Finance Bill 2007 to amend the stamp duty land tax (SDLT) treatment of exchanges of property by providing that, where an exchange of property takes place between ‘connected persons’, the two legs are not ‘linked’ with each other for determining the rate of SDLT.
• From 1 October 2007, a new time-limited relief from stamp duty land tax (SDLT) will be available for the vast majority of new zero carbon homes in the UK.

VAT

• The taxable turnover threshold, which determines whether a person must be registered for VAT, is increased from £61,000 to £64,000 from 1 April 2007 (The deregistration limit is also raised from £59,000 to £62,000).
• The basis of the existing VAT private use charge is being changed from engine size to carbon dioxide (CO2) emissions from 1 May 2007.

Administration

• Changes to enquiry windows will affect individuals, trustees and partnerships who complete income tax self-assessment tax returns, and most companies who complete company tax returns. Broadly, the changes will link the period during which HMRC can enquire into most returns to the date the return is received. The changes will apply to self-assessment tax returns for 2007/08 onwards and for company returns for accounting periods ending after 31 March 2007.
• Changes to the regulation making powers to require online filing and electronic payment will ultimately affect most  businesses.
• Changes to the effective date of payment by cheque will affect businesses that pay corporation tax and/or VAT by cheque.

John Cullinane, President of The Chartered Institute of Taxation, summarised the Chancellor's speech by saying "Simplification of tax rates and capital allowances announced in the Chancellor's speech show a welcome acknowledgment that the tax system has become two complex as The Chartered Institute of Taxation has long argued.  We very much hope that the same trend will be as evident in the small print as it is in the headlines."

Links

HM Treasury: Budget 2007

Chartered Institute of Taxation

Forum of Private Business

Chiltern