The tax implications of the Budget 2012 for SMEs.

Simon Massey, Tax Partner, Menzies LLP comments on the tax implications of the Budget 2012 on SMEs.

Corporation tax to decrease

This is positive news that will help the competitiveness of the UK. We have seen that the current headline rate of 26% has been a real incentive for attracting business into this country. Dropping to 24% from 1 April 2012 and then to 22% by April 2014 is excellent news for British business. It is also great that this rate will drop to 20% if the Government’s policy goes to plan.

Tax simplification for businesses under £77,000

This is a slightly cynical move as it actually means the work of HM Revenue & Customs will be easier. We have found that simplifications moving to cash basis is often a way of making the compliance regime easier for HMRC rather than necessarily making life easier for business – however it is to be welcomed.

It should be noted that following the comments in the last few weeks about Personal Service Companies (used by some senior Government employees) there is a consultation about to start on this whole area to “simplify” how this system is operated, with a view to tackling avoidance of employment income. Subject to consultation, there appears to be a move towards requiring office holders who are integral to the running of an organisation to have PAYE and National Insurance deducted at source by the organisation they are engaged within. This would hopefully mean that no Government employees (for example) would be working through their own company, but the spectrum of this legislation will inevitably stretch much further.

Combining Income Tax and National Insurance

The much trialled combination of Income Tax and National Insurance administration is going to be taken a stage further. This has to be good news if the anticipated reduction in red tape emanates from it. Inevitably the change will take a long time to implement as there are a whole host of competing regulations.

With the move towards real time information for payrolls already underway, the administrative burden is definitely on the tax payer at this stage. This, coupled with the role out of a new penalty regime in the PAYE scheme, suggests that HMRC’s priority is raising money rather than reducing red tape.

New tax incentives for exporters, biotech, R&D and video games companies

This is undoubtedly good news for exporters, people in the biotech industry, those doing research and development or in the video games industry. For the video games industry we expect this to follow the arrangements that are already in place for the film industry, which have been very successful in promoting British film. A whole financial services industry has grown on the back of these arrangements, which has led to a micro-industry generating tax relief on these schemes. But they are keeping activity and business in the UK, which has to be good news.

We must hope that the biotech export and R&D changes are not as hollow as the National Insurance holiday and the seed enterprise scheme announced in previous budgets. The headline-grabbing policies have transformed into schemes that are in reality pretty difficult to operate.