Corporation Tax
It was announced in the Budget that there would be an additional 1% reduction to the main rate of corporation than that announced in the June Budget 2010.

The main rate for the financial year beginning April 2011 will now drop by 2% to 26%, this will followed by three further 1% cuts to 23% by the Financial Year beginning April 2014. The small companies Corporation Tax rate for companies with profits up to £300,000 will be reduced by 1% to 20% as announced in the Emergency Budget in June 2010.

The marginal rate of tax for the Financial Year beginning April 2011 will therefore be 27.5%.

Extension of small Business rate relief holiday
This scheme was introduced in October 2010 and was due to last for one year only, but has been extended until 30 September 2012.

Under the scheme, if a business occupies a single building with a rateable value of £6,000 or less, then it is eligible for a 100% reduction in its business rates bill. If the building has a rateable value of between £6,000 and £12,000, then its business rates are reduced on a sliding scale, e.g. a rateable value of £7,800 results in a reduction of 70% and a rateable value of £9,000 results in a 50% reduction. If a business occupies more than one building it can still qualify under the scheme, but only if each has a rateable value of less than £2,600 and the cumulative rateable values are less than the limits above.

Business Payment Support Service
HMRC will continue to provide advice and time to viable businesses experiencing temporary financial difficulty. However, our practical experience recently is that HMRC is being more rigorous and is asking more questions before allowing businesses to take advantage of this scheme.

Research & Development Tax Relief
The Chancellor announced some very important changes to the Research & Development (R&D) Tax Relief regime.

This relief, which was introduced in 2000 for SME companies and extended, with some differences, to large companies in 2002, provides for an enhanced tax relief on certain qualifying costs in calculating the taxable profit of companies undertaking R&D.

This has been a very popular relief although there are still many companies failing to make a claim.

The changes made are as follows:

From 1 April 2011, subject to receiving state aid approval, the SME enhancement rate of currently an additional 75% will be increased to 100%. For example, a company spending £50,000 on qualifying R&D costs can deduct a further £50,000 when adjusting its accounting profit to calculate its taxable profit.

From 1 April 2012, subject to consultation to be published in May, the SME enhancement rate will increase to 125%. Furthermore, the minimum spend of £10,000 will be abolished, allowing claims by smaller companies such as hi-tech companies. This often occurs where the owner-director doesn’t draw a salary and the R&D costs are only on materials.

In addition, for SME companies making a claim which increases or creates a tax loss, the loss can be surrendered for cash back but this has a cap based on PAYE and NIC paid in the accounting period. From 1 April 2012 the cap will be removed.

Finally, there will be consultation on changes to the large scheme in relation to subcontract costs.

In addition to the R&D tax relief changes, the Chancellor confirmed that the concept of a patent box, being a 10% corporation tax rate on patent income, is still going ahead and further consultation will be published in May.