The chancellor’s green Budget contained proposals to encourage growing businesses, recognising that they create wealth and jobs. But he was silent on other potential tax changes affecting such businesses.
Growing businesses previously benefited from reductions in corporation tax rates (to 20% for small companies from next April) and a higher initial 40% tax allowance on investment in plant.
The government is to consider converting the latter into a permanent tax cut, which would be a useful reduction in the corporation tax burden and would encourage businesses to finance their own expansion.
Consultation is also promised on a research and development tax credit for growing businesses. These measures will reduce the corporation tax burden, but won’t simplify it.
Growing businesses will continue to suffer from the complexity of the tax system with penalties for getting corporation tax compliance wrong.
No further announcement was made about the new payments on account system and, while small and medium-sized companies with taxable profits of less than #1.5m per annum will be exempt, those whose profits exceed that must make quarterly payments on account.
Despite representations, the payments on account system will be based on the tax liability for the current year rather than the previous year.
This will create problems for companies that have difficulty in estimating their tax liabilities. In addition, the self-assessment system comes in for all companies next year, imposing greater responsibilities on companies to get their corporation tax right.
A nationwide helpline and local information centres are to be set up for start-up businesses to help them sort out ‘red tape’ in PAYE and NI. The chancellor did not mention VAT, however, which can be just as difficult to deal with.
Once again, the chancellor has sought to encourage growing businesses and their owners. While many of the detailed measures are not yet known, they are likely to result in a reduced tax burden.
Richard Baldwin is a tax partner at Deloitte & Touche.
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