Reduction in the corporation tax rate As part of the Government's ambition to establish the UK tax system as the most competitive in the G20, the Chancellor has announced a further cut in the main rate of corporation tax to 20% from April 2015.
This will align the main rate of corporation tax with the current small profits rate of 20%. In the process, the Government has confirmed that it will unify the small profits rate and the main rate so that there is a single rate of corporation tax for the first time in Britain since 1973.
The Chancellor said that this would result in Britain having "the lowest business tax of any major economy in the world" and the joint lowest rate of corporation tax in the G20.
The alignment of the two rates will result in a major simplification of the business tax system, removing the need for marginal relief calculations.
The Chancellor also confirmed that the bank levy will be increased, to ensure that the corporation tax cuts do not benefit the banks.
A new employment allowance From April 2014, all businesses, charities and community sports clubs will benefit from a new £2,000 a year Employment Allowance to reduce their employers' National Insurance contributions (NICs), which will enable every business to employ four full-time employees on the adult National Minimum Wage without paying any employers' NICs.
This was the most generous tax cut in the Budget and will be particularly welcomed by smaller businesses seeking to hire their first employee or take on additional employees, as it will reduce the cost of employment.
The allowance will be delivered through standard payroll software, with employers only needing to confirm eligibility through their regular payroll processes. The £2,000 allowance will be deducted from the employers' NIC liability over the course of the year's PAYE payments.
The Government will be engaging with employers on the implementation of the measure, with legislation expected later this year. While we welcome the new allowance, ensuring it is simple to implement will be key to its effectiveness in helping to promote jobs and help businesses.
Capital gains tax relief on the sale of a controlling interest in a business The Chancellor has committed to providing an annual funding pot of £50 million from 2014/15 to help support employee ownership as recommended by the Nuttall Review. As part of this commitment, the Government introduced proposals for a new capital gains tax exemption in Budget 2013. It is proposed that this tax exemption, which will be available from April 2014, will apply to certain qualifying disposals of a controlling interest in a business into an employee owned structure.
Although we await the exact details of this relief it is hoped that it will encourage entrepreneurship. A consultation on the relief is expected in the Autumn. There could also be some more welcome news to come, as the Government has also said it will look into further incentives to support employee ownership, such as introducing measures to help employees take ownership of businesses through indirect ownership models.
Tax reliefs for employee shareholders As announced at the Conservative party conference in October 2012, in order to promote employee share ownership, the Government is introducing a new employee shareholder status with associated capital gains tax, income tax and National Insurance contributions (NICs) savings. It is hoped that increased share ownership by employees will boost engagement and productivity, although there was little enthusiasm for the scheme when it was initially announced.
To qualify for this new status, employees will receive shares worth a minimum of £2,000 in their employer's company in exchange for reduced employment rights. In Budget 2013, the Chancellor announced that employees receiving shares under this new status will be deemed to have paid £2,000 for the shares in order to ensure that the first £2,000 of shares received will be free from income tax and NICs. However, the detail of the Finance Bill, published on 28 March 2013, reveals that this relief will not be available where employee shareholders already have a material interest in the company.
In addition, as already announced in Autumn Statement 2012, the Budget 2013 confirmed that gains on up to £50,000 worth of shares received by employee shareholders will be exempt from capital gains tax. The Finance Bill, published on 28 March 2013, also confirms that this exemption will not be available where employee shareholders already have a material interest in the company.The new status will be introduced from 1 September 2013, when the new rules, tax reliefs and exemptions will come into force.
The day after the Chancellor's Budget statement, the House of Lords rejected the clause in the Growth and Infrastructure Bill introducing the concept of employee shareholders. At best, this is likely to result in delays to the introduction of the new status and corresponding tax reliefs. At worst, the Government could be forced to abandon the concept altogether.
Increase in above the line tax credit The Chancellor has announced that the headline rate of the research and development (R&D)above the line (ATL) tax credit, to be introduced from April 2013, will be 10% of qualifying expenditure, an increase from the 9.1% rate proposed at Budget 2012. This will be a welcome announcement for large groups involved in innovation that will particularly benefit loss making companies.
The Government hopes that this will make the UK a more attractive location for large company R&D activity by further reducing the after tax cost of investment.
The intention behind the credit is to incentivise those making the investment decisions in a company to undertake R&D as it should improve the visibility of the relief. It will also provide cash flow support to loss making companies.
The Chancellor said, "along with our new 10% corporation tax rate on profits from patents coming in next month, this will help make us one of the most internationally attractive places to innovate".