Budget 2012: What small businesses need to know

From corporation tax to videogame relief and R&D tax credits, here's the lowdown on what the new Budget means for SME owners.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

At 12:30 on Wednesday, Chancellor George Osborne opened Big Red and let rip. Was it the best Budget for business ever? No. Was it an improvement? Probably. Here are the key points:

Corporation tax

What’s happened?
As of next month, corporation tax will drop to 24%. And every year, government will shave another percentage point off until it hits 20%. This puts the corporation tax rate in line with the small companies rate and the basic income tax level. Tax simplification, as promised.

What the Chancellor said
‘The headline rate of corporation tax remains the most visible sign of how competitive our country is. We've already cut the rate from 28% to 26%. This April it is due to fall again to 25%. I can announce today a further cut of one percent – to be implemented right away. By 2014, Britain will have a 22% rate of corporation tax. The biggest sustained reduction in business tax rates for a generation. A headline rate that is not just lower than our competitors, but dramatically lower.18% lower than the US.16% lower than Japan.12% below France and 8% below Germany. An advertisement for investment and jobs in Britain.’

The business reaction:
Stephen Archer, founding partner of leadership consultancy Spring Partnerships, says: ‘The immediate 1% cut in corporation tax to 24% and the announcements of two further cuts which will take it to 22% by 2014 were very positive, however, business rates are going up in April and there was no mention of a reduction in the current 20% VAT rate.’

R&D tax credits

What’s happened?
Osborne has announced that R&D tax credits are to be moved ‘above-the-line’, meaning that loss-making companies as well as profitable ones can benefit from them. The credit will be a minimum rate of 9.1% before tax and is due to come in from April 1 next year.

What the Chancellor said:
‘This Government also supports research and development here in Britain instead of abroad. We’ve already increased the generosity of the R&D tax credit for smaller firms. I confirm that from next year we will also introduce an 'Above-the-Line' R&D tax credit that business organisations like the EEF, IOD and CBI have campaigned hard for.’

The business reaction:
Paul Alexander, CEO of data firm Beyond Analysis, says: ‘Increasing the R&D tax credit for smaller firms is an excellent move – but its benefits will be negligible if it continues to take months for a claim to be processed. In today’s highly competitive and fast-moving technology environment, a delay in funding means a delay in development and an opportunity for overseas competitors to catch up.’

Tax relief for videogame and TV companies

What’s happened?
The government will introduct a tax credit for the TV production and vidogames industries to help keep domestic talent in the UK. Details are not yet available.

What the Chancellor said:
‘The film tax credit, protected in our spending review, helped generate over £1 billion of film production investment in the UK last year alone. Today I am announcing our intention to introduce similar schemes for the video games, animation and high-end TV production industries. We want to keep Wallace and Gromit exactly where they are.’

The business reaction:
Dr Richard Wilson, CEO of TIGA, the UK Games trade association, says: ‘Like a boxer knocked down by his opponent, we refused to accept defeat and kept getting back in the ring. This victory will benefit not just the UK games development and digital publishing sector but also the wider UK economy.’

Cash-based accounting

What’s happened?
Tax returns for small businesses (with a turnover up to £77,000) will be simplified and based on a cash basis.

What the Chancellor said:
‘Last year, I asked the Office of Tax Simplification for recommendations. They have proposed that we tax small firms on the basis of the cash that passes through their businesses, rather than asking them to spend a huge amount of time doing calculations designed for big business. I agree. So we will consult on this new cash basis for calculating tax for firms with a turnover of up to £77,000 - double what the Office proposed. This will make filling in tax returns dramatically simpler for up to three million firms.’

The business reaction:
Alastair Kight, managing director of GRITIT, says: ‘It’s good to see the introduction of a simplified tax system for small firms, but I don’t believe George Osborne has gone far enough. Hasn’t the time come to introduce company NI and tax contribution holidays when hiring 16-24 year olds to give them and businesses a chance to create and work on solid opportunities?’

Super-fast broadband

What’s happened?
The government has promised to bring superfast broadband to 90% of the UK. Starting with ten cities: Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, Manchester, Newcastle and London, it will then roll out a £50m scheme to implement superfast broadband in smaller cities.

What the Chancellor said:
‘Two years ago Britain had some of the slowest broadband speeds in Europe; today our plans will deliver some of the fastest – with 90 per cent of the population having access to superfast broadband, and improved mobile phone coverage for rural areas and along key roads across the UK.’

The business reaction:
Julia Stent, director at uSwitch.com, says: ‘Whilst funding earmarked for ultra-fast broadband in 10 UK cities is both ambitious and heartening, and will undoubtedly benefit technology companies looking to develop and expand in the UK, the primary concern should be the provision of a quality service to rural areas before pursuing the title of fastest broadband in the world.’

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