The chancellor announced a series of tax-cutting measures in yesterday’s Pre-Budget Report. The main changes include:

1. The main rate of Value Added Tax will, from December 1st, be reduced from 17.5% to 15% until the end of 2009.

2. Deferral of the increase in the small companies’ rate of corporation tax. The rate will stay at 21% from April, instead of rising to 22% as previously announced.

3. National Insurance rates will increase by 0.5% from 2011 - for both employers and employees.

4. A 45% rate income tax band will apply to salaries of £150,000 and above after the next General Election.

5. The £120 rebate for basic rate taxpayers will remain and will be increased to £145 from April 2009.

6. A new Small Business Finance Scheme to support up to £1 billion of bank lending; a separate £1 billion guarantee facility to support bank lending to small exporters; a £50 million fund to convert businesses’ debt into equity; and a £25 million regional loan transition fund.

8. Introduction of a new HMRC Business Payment Support Service to allow businesses in temporary financial difficulty to pay their HMRC tax bills on a timetable they can afford.

9. Changes to the taxation of foreign profits - including the introduction of a foreign dividend exemption for large and medium-sized businesses, supported by a worldwide debt cap on interest.

Following the Chancellor’s announcement, the basic Personal Allowance for the 2008-09 tax year is increasing by 600 from 5,435 to 6,035 and the basic rate limit is reducing from 36,000 to 34,800.
As a result, many employees will see their tax code change in September. The new tax codes must be applied on the first payday on or after 7 September 2008.

Chancellor Alistair Darling delivered his first budget yesterday and began his speech by announcing that the British economy was growing at a faster rate than all other G7 countries and reinforced that ‘Britain was one of the best places in the world to do business‘.

The main announcements that affect UK business are outlined below.

Tax & National Insurance - The limits for the different classes of National Insurance Contributions (NICs) rise in line with inflation, with the lower profits limit for the Class 4 NICs paid by self-employed people up to £5,435 and the upper profits limit for Class 4 NICs rising to £40,040. A package of 20 tax simplification measures to help reduce red tape costs and simplify tax calculations was also announced and the enterprise management incentive tax relief scheme will increase from £100,000 to £120,000

VAT - From 1 April 2008, the VAT registration threshold will be increased from £64,000 to £67,000 and the deregistration threshold from £62,000 to £65,000, and from 1 June 2008, revised legislation will be introduced to extend the cooling-off period to six months.

Corporation Tax - The main rate of corporation tax (CT) is 28% for the 2008/09 financial year. However, there is a lower rate of 21% for small companies with taxable profits of less than £300,000. Legislation will be introduced in the Finance Bill 2008 to set the main rate of CT at 28% from 1 April 2009. There will also be a 2p cut in corporation tax for large companies, from 30p to 28p in the pound.

Capital Allowances - As announced in last year’s Budget, with effect from April 2008, capital allowances for general plant and machinery investment will be reduced from 25% to 20%. Also with effect from April 2008, capital allowances for longlife plant and machinery investment will be increased from 6% to 10%.

Capital Gains Tax - Originally announced in January this year, small and medium-sized businesses will be charged a rate of 10% Capital Gains Tax (CGT) for the first £1 million of gains. SFLG – There will be an extension of the Government’s Small Firms Loan Guarantee Scheme (SFLG) to include all businesses and an increase of £60 million in funding the scheme.

Public Sector Contracts – The Chancellor has introduced a goal for small firms to win 30% of all public sector business contracts in the next five years.

Female Entrepreneurs - there will be a £12.5m fund to help and encourage female entrepreneurs.

Cars - From 2010, new cars that emit less than 130g of CO2 emissions will pay no car tax in the first year. Those that buy the most polluting cars can expect to pay higher road tax in the first year. The increase in petrol duty will be capped at 2p this year but will be deferred until October. However, the Chancellor also announced a fuel duty increase of 0.5p per litre for ‘environmental reasons’, to take effect from 2010.

Staff – The expansion and improvement of the Train to Gain scheme was announced along with Skills Accounts to be launched by 2010 and £60 million extra funding for adult skills.

International Trade - Introduction from 2010 of an online system to help recovery of overseas VAT for UK businesses.

Chancellor Alistair Darling is to present his first Budget on 12 March, it has been revealed. This year’s budget could become a political pawn as it is widely expected that the Prime Minister will call a General Election in spring 2009. Check back on this post to see how the budget announcements will effect your business.