In this year’s Budget, Chancellor Gordon Brown did not extend the 100% allowance for computer equipment for small businesses. But you still have until the end of March to take advantage so if you are looking to buy equipment in the next three months, buy it now.
However, Brown has increased first-year capital allowances from 40% to 50% for plant and machinery, which means that if you invest your profits in this equipment, then you will get your tax relief faster. The new rate will apply to expenditure from 1 April 2004 for corporation tax and 6 April 2004 for income tax. And you can also claim for more types of expenditure when it comes to R&D.
But despite claiming that he wanted to encourage enterprise, the Chancellor upset many accountants and small business representatives by imposing an effective corporation tax of 19% on profits distributed to individuals running their own businesses. This applies from the beginning of April, leaving you little time to prepare for the change in costs.
Two years ago many self-employed people earning less than £50,000 were encouraged to incorporate as businesses, after the Government introduced a zero rate of corporation tax on the first £10,000 of profits earned by such a business and a 10% rate on profits between £10,000 and £50,000.
These rates continue to apply, but if such profits are paid out as a dividends, rather than reinvested in the business, then the owner-manager will be taxed at 19%, in line with other income received.
Peter Penneycard, national director of tax at accountants PKF, commented: “He wants to be seen to be in favour of enterprise by offering tax incentives but then complains about “tax avoidance” when his schemes are successful.”
Simon Sweetman of the Federation of Small Businesses welcomed other aspects of the Budget, in particular the enhancement of first-year capital allowances, for one year from this April, from 40% to 50%. However, he was disappointed that the 100% first-year allowance for investment in IT was not extended again.
Businesses looking to raise expansion capital of Â£1 million or more should also benefit from the Chancellor’s decision to enhance the income tax relief given to investors in Venture Capital Trusts (VCTs) from 20% to 40%.