George Osbourne delivered his second budget this week. In these fragile economic times, commentators were unsure whether there would be anything positive for business owners.
The majority of our commercial clients are small to medium enterprises and it therefore came as a welcome surprise that the budget showed clear support for private sector companies aimed at encouraging business growth.
The main highlights of the budget from my perspective were:
- the reduction in the Corporation Tax rate beyond levels previously announced – the main rate of Corporation Tax will reduce by 2% to 26% in the coming financial year – representing a further (earlier) 1% reduction than previously announced. The main rate (applicable to businesses with profits over £1.5 million) will also drop to 23% by 2014 – a welcome measure for businesses at the upper end of the SME spectrum.
- The tax payable on businesses with profits under £300,000 will also reduce from 21% to 20% effective for the year ending 31st March 2012 – allowing smaller businesses to maintain a higher proportion of profits to re-invest for growth.
- The increase in the rate of income tax relief for Enterprise Investment Schemes (EIS’s) investment from 20% to 30% for shares issued on or after 6 April 2011. This should encourage more SME’s to set up this type of tax efficient share option scheme and enable more employees to invest in the company they work for and benefit from its growth.
- The increase in entrepreneurs’ relief for CGT purposes which doubled to a lifetime limit of Â£10m from 6 April 2011. This should enable the vast majority of SME business owners to benefit from a reduced rate of CGT of 10% when they come to sell their shareholdings.
Despite these positive moves to support businesses, the forecast for economic growth was still reduced – it is now expected that the UK economy will only grow by 1.7% in 2011. Previous forecasts from the Office for Budget Responsibility had put this figure at 2.1%.
So although we are looking at a positive picture for SME’s overall, growth is still set to be slow for the foreseeable future, in particular the coming twelve months.
Whether the Coalition’s ‘Budget for Growth’ delivers real growth in our economy remains to be seen.
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