How did the Budget stack up?
This year’s Budget, though aimed primarily at boosting the economy and plugging the government’s financial gap, contained some useful measures for business.
The temporary extended tax relief for trading losses is now more generous than previously announced. It is available for losses of two accounting periods, rather than just one as originally planned. Businesses can carry back up to £50,000 of losses a year against the profits of the two years before the immediately preceding year. Businesses can already carry back unlimited trading losses against profits of the preceding year.
Company losses in accounting periods ending between 24 November 2008 and 23 November 2010 can benefit, and sole traders and partnerships can also claim additional relief for losses in accounting periods ending in the tax years 2008/09 and 2009/10.
Businesses investing more than £50,000 in equipment can benefit from a temporary first-year allowance (FYA) of 40%. This covers expenditure over £50,000, which would otherwise have received a 20% allowance. Some equipment is excluded, cars in particular. For more information on FYAs, see "Temporary first-year allowance saves tax" below.
The small companies’ corporation tax rate of 21% continues this year and the main rate will stay at 28% for the financial year 2010. Incorporation may become more attractive to individuals and partnerships who from 6 April 2010 will be hit by the 50% tax rate on income over £150,000 and the gradual withdrawal of the personal allowance on income over £100,000.
The introduction of new measures to crack down on income splitting between spouses has been postponed, so running a business as a company in which both partners take dividends remains beneficial. There are some limitations and you should take advice.
Capital gains tax (CGT) remains at 18%. One way of avoiding high rates of income tax may be to leave profits in your company. Eventually you could sell or liquidate the company, paying only 18% CGT, or even 10% if your gain qualifies for entrepreneurs’ relief.
One surprise Budget announcement is the abolition, from April 2010, of the tax reliefs for furnished holiday lettings. You might want to consider disposing of such property before 6 April 2010, so that you can claim CGT entrepreneurs’ relief, rollover relief or holdover relief.
As always, we are happy to advise further on how you can plan for the changes announced in the Budget.