What does the 2007 budget mean for your business?

Small firms will draw particular benefit from a new Annual Investment Allowance of £50,000.

By Anna Rooke, OurWorld Editor

Yesterday the UK chancellor Gordon Brown announced a headline-grabbing cut to the UK’s corporate tax rate from 30 to 28 per cent.

This move was indicative of a Budget geared to the needs of business, aimed at keeping the UK competitive for international firms.

A key objective of the Budget, noted the chancellor, is “promoting long-term investment and environmentally sustainable growth necessary now and in the future to Britain’s success in the global economy.”

Promoting international competitiveness

The 2% reduction in the headline corporate tax rate will come into effect in April 2008.

The chancellor said the cut would make the UK's business tax rate “lower than America, Germany, France, Japan, and all of our other major competitors”.

He noted that business investment in the UK is predicted to rise by more than 7 per cent in the coming year.

Figures showing that the UK has closed the productivity gap with Japan and Germany, narrowed it with the USA and halved it with France were also unveiled.

Small business investors

While the headline corporate tax rate was reduced, the chancellor announced the rate for small businesses will increase from the current level of 19 per cent to 22 per cent by 2009.

The aim of the new rate is to establish a more consistent tax treatment for small business and the self-employed.

Capital allowances – increased environmental incentives

A new two-tier system will aim to streamline and simplify capital allowances.

Investors in long-life assets – those with expected lives of more than 25 years – will benefit from an increase in capital allowance from 6 per cent to 10 per cent.

Capital allowances on the general pool of plant and machinery will be reduced from 25 per cent to 20 per cent and capital allowances on industrial buildings will be phased out.

For environmental investments capital allowances will be extended by £40 million.

Supporting growth of small firms

Small firms will draw particular benefit from a new Annual Investment Allowance (AIA).

This will enable businesses to offset 100 per cent of expenditure on general plant and machinery against taxable profits – up to £50,000 – from April 2008.

The aim of the new allowance is to support all companies that are investing in the UK for growth.

Focus on science and innovation

From April 2008 the rate of R&D tax credits will increase from 150 per cent to 175 per cent of expenditure for small to medium-sized enterprises (SMEs) and 125 per cent to 135 per cent for large companies, subject to EU approval.

The UK’s public investment in science will be boosted by a sum of over £1 billion, from £5 billion this year to £6.3 billion by 2010-11.

A further £100 million has been earmarked for UK business to research and develop new technologies.

And the UK is launching a competition to build the world’s first full-scale carbon capture and storage demonstration project.