The Budget also tells small businesses to expect "revised and simplified guidance" on the Data Protection Act by the end of May.
The Budget extends 100% first-year capital allowances for information and communication technology until 31 March 2004. According to Gordon Brown's statement, this is "to encourage up to 3.7 million businesses to invest in information technology and succeed in the knowledge economy."
It also introduces improvements to research and development (R&D) tax credits for all companies. Companies currently only receive the R&D tax credit when they spend more than £25,000 on R&D in an accounting period. This threshold will be reduced to £10,000, allowing more SMEs in particular to claim the credit. Brown also announced an extension of the coverage of the large company scheme, making it easier for SMEs in particular to access the credits.
Some companies use cutting edge software in their R&D that may have a very short useful life, the costs of which are not currently covered by the credit. Subject to consultation on a definition, to focus the credit where it is most needed, the Government proposes to extend the credit to cover such costs.
Jeremy Brittain, a tax partner at KPMG, commented:
"The tax credit for research and development spend has been designed to encourage UK business to invest in the future. However, since its introduction, many companies have failed to follow up on the tax credits due to uncertainty on what is actually meant by 'research and development', and a restriction on the type of expenses they can claim."
Below are some of the other points in yesterday's Budget statement.
Measures to reduce regulation and compliance costs
- aligning the Company Law definitions of small and medium-sized companies with the maxima allowed under EU law, as soon as the new EU maxima come into force. This will:
- extend less onerous accounting and reporting arrangements to more small companies; and
- allow more businesses to benefit from the 40 per cent plant and machinery and 100 per cent ICT allowances.
- the recent launch by the DTI of the no-nonsense guide to government rules and regulations to help people setting up in business;
- measures to promote employee share schemes, reducing the burdens on employers who offer these schemes to their employees;
- a package of measures to simplify capital gains tax, including a relaxation of reporting requirements in cases where there is no liability;
- consultation on a package of measures designed to increase fairness in the recovery of VAT;
- following consultation, the introduction from 1 December 2003 of a scheme to reduce import VAT compliance costs for approved businesses;
- consultation in this summer on raising the statutory audit threshold, releasing more SMEs from audit obligations, with plans to be set out in the Pre-Budget Report;
- specific measures to help small and newly-registered businesses reduce their VAT compliance costs by up to £1,000, improve cash flow and manage their entry into the VAT system. These include:
- increasing the annual taxable turnover limit in line with inflation from £55,000 to £56,000, from 10 April 2003 lifting 2,000 small business out the of the VAT regime;
- increasing the turnover ceiling to £150,000, from 10 April 2003, for businesses wishing to use the flat-rate scheme and for newly registered businesses wishing to use the annual accounting scheme;
- relaxation of automatic late payment penalties for more businesses, with turnover of up to £150,000; and
- a new incentive scheme to encourage small businesses into the VAT system. The scheme includes reduced penalties for late notification.
- fairer and more consistent regulatory enforcement at the local level through revised guidance on the voluntary Enforcement Concordat - with the Government standing ready to introduce statutory codes of enforcement practice if necessary;
- further action by the National Statistician to minimise the load of statistical surveys, building on the success of the ONS modernisation programme, including the rationalisation of some surveys, the wider use of administrative data and the greater use of new technology in data collection;
- producing revised and simplified guidance on the Data Protection Act to assist small businesses by the end of May;
- more business secondees to government to take forward reviews of the construction, transport and environmental service sectors to identify deregulatory measures; and
- reform of the Construction Industry Scheme in April 2005, to reduce the regulatory burden on businesses.
Modernising and simplifying the tax system
- further consultation in the summer on reform of the corporation tax system, setting out the Government's strategy for taking forward reform. The Government will consider the reform of corporation tax in its broader European and international context;
- promotion of the use of modern communication methods to reduce administrative costs for government and business, and ensuring prompt payment by requiring electronic payment of in-year PAYE and other statutory deductions;
- a consultation to be published shortly on proposals to simplify the procedure for paying Manufactured Overseas Dividends (MODs) without accounting for withholding tax.