MT Expert - Finance: The best and worst of the 2010 Budget

This year's Budget contained good news and bad news for SMEs, says Baker Tilly's George Bull.

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Last Updated: 31 Aug 2010

There were no blockbuster tax announcements in the Budget - which, given the parlous state of the public finances, ought to come as a relief. In fact, this Budget contained a couple of pleasant surpries and can, overall, be seen as a generally positive budget for growing businesses in tax terms.

THE GOOD NEWS...

The annual investment allowance being doubled to £100,000 provides growing businesses with additional relief for investment in plant, equipment and related property improvements - as well as reducing compliance costs. The increase applies to expenditure from 1st April for companies and from 6th April for unincorporated businesses.

Planning point: Review both your existing and planned expenditure to maximise the benefit of the increased allowance.


The entrepreneurs’ relief lifetime limit has doubled to £2,000,000. This means entrepreneurs may make an additional capital gains tax saving of up to £80,000 on disposal of a business. Remember that the relief can also be available when a partnership changes members, or a sole trader or partnership transfers the business to a company.

Planning point: If there is the possibility of a sale or restructuring in the short or medium term, take advice to ensure that the relief will be available and fully used.


HMRC’s 'Time to pay' arrangements will be extended for a further four years. This will not create a free-for-all of voluntary tax deferral. But it should enable viable businesses with immediate cashflow problems to ride out their troubles more easily.

Planning point: review potential tax liabilities and apply in good time for time to pay. HMRC may require an independent business review.  Arrangements need to be in place before tax becomes due to avoid surcharges.


The new tax relief for games developers is something that has long been sought after by this growing industry. The Chancellor announced a welcome consultation on the form of a video games relief. It must be hoped that it will quickly bear fruit and provide worthwhile incentives to games developers to remain in the UK - by providing adequate reliefs for development costs, and fair taxation on the exploitation of intellectual property rights.

Planning point: Games developers should monitor what’s happening in the consultation process.

 
...AND THE BAD NEWS

The higher rate income tax relief for pension contributions may be of interest only to people who have incomes above £130,000. But entrepreneurs in volatile industries are potentially worst-affected by the restrictions on pension contributions, because they fail to make adequate provision for the fluctuating profits of the self-employed. The full restrictions are not due to come into effect until 2011, but in the meantime there are anti-forestalling provisions that restrict the opportunity to obtain tax relief for additional pension contributions made before 6th April 2011.

Planning point: The conventional route of paying pension contributions out of increased profits may be denied; seek independent financial and tax advice and consider other forms of investment.

 
George Bull is Head of Tax at Baker Tilly (george.bull@bakertilly.co.uk)

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