With all the excitement of the budget now over the devil in the detail comes to light. With specific regard to the small and medium sized companies (SMEs) and individual income tax cases, the budget shows some improvements but overall a very safe budget. Here are the things you need to know:

Corporation (Company) Tax

Legislation is to be introduced to reduce the main corporation tax rate from 28% to 26% for the financial year beginning 1 April 2011. The small profits rate (most SMEs) will see a reduction from 21% to 20% as previously planned.

Businesses generally (e.g. Companies, Sole Traders and Partnerships)

The Annual investment Allowance (AIA), being in short an allowance for asset purchases allows a full deduction of the asset cost against profit in the year of the acquisition, is being decreased to £25,000 from £100,000 from 1 April 2012. Therefore any major asset purchases are advised during this tax year to get the full tax deduction this year instead of through the writing down allowance (WDA) where the cost will be spread over a number of subsequent years, possibly running until after the asset has come to the end of its life or even sold.

The WDA is currently at 20% but legislation is also being introduced to reduce this further to 18%. So any acquisitions outside the AIA will only see 18% of the cost of the acquisition deductable against profit and this is on a reducing cost basis so the deductable amount will reduce year on year. The 18% rate is to be introduced to all businesses for accounting periods ending on or after 1 April 2012 (for companies, 6 April for sole traders, partnerships etc).

Employment Tax

With the approved mileage allowance being static for many years it is now increase for the first 10,000 business miles to 45p from 40p (the 25p thereafter remains unchanged).

Employer-supported childcare will be restricted for those individuals in the high rate (and additional rate) tax bracket. Currently £55 per week is the exempt amount which can be paid by an employer towards childcare fees without triggering any additional (benefit in kind) income tax.

With fuel prises’ soaring a 1% fuel duty cut was welcome news for most but something not as well publicised was the increase to Company car drivers. Employees who have company cars as part of their employment will take another hit if they are also provided with fuel with the deemed benefit multiplier increasing to £18,800 (x by CO2 rate) from 6 April 2011 (from £18,000). Combine this with the actual CO2 rates being increased by 1% from tax year 6 April 2013 for all cars.

Income Tax

Your current personal allowance for income tax for this year to 5 April 2012 is £7,475 (so no tax to pay on income below this limit) and this is to be increased to £8,015 for the tax year to 5 April 2013. However for the high earners the 50% additional rate is to remain in place even though the government has promised to review how much tax it is actually generating.

Capital Gains

Good news for business owners (including qualifying shareholders) with the increase in entrepreneurs’ relief from £5million to £10million. This means on the disposal of a business (or qualifying shares in a business) a gain of up to £10million will be taxed at 10% instead of the 28% charged to high income earners (£10million is a lifetime limit of qualifying disposals).

Other Snippets

Slightly away from the tax nitty gritty I am sure you will have all noticed the council tax rates have been frozen this year in every English council.

Something you may not have noticed quite yet is there will be no additional alcohol duty rates but the planned 2% above inflation rise in excise duties on wine and beer is to go ahead.

Tobacco duty rates to increase by 2% above inflation.

My View

Overall there was nothing that got me and my team more excited than the additional 5p rise on the mileage allowance and in summary I would say, a very standard, as expected budget.

Even though it is pleasing to see corporation tax rates come down I still feel that the budget is a long way short of actually helping SME’s where they need it most. The Government still needs to address the money issue and getting it to budding young businesses so they can develop their business.

Mark Darbyshire

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Please note that the above content is only provided as a guide to the current changes and budget announcement. Some of the above items have certain qualifying criteria and it is to that extent that the information should not be relied upon without further advice.