Tax credits and CGT cut provide incentives to business

Corporate Tax
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The Independent Online

Four so-called "tax cuts for enterprise" were announced in response to widespread calls for a boost to business at a time of economic slowdown.

Tax specialists stressed that the measures merely restated announcements made in June, after the general election, and pointed out that businesses expected more help in the light of difficult trading conditions. But they welcomed the attempt to make the UK more competitive and attractive to investment.

The key measures announced by Gordon Brown yesterday were:

* Next year's Budget will contain a new research and development tax credit for large companies to complement the one in place since April 2000 for companies with turnover of less than about £25m and fewer than 250 employees.

* From next April, taper relief for Capital Gains Tax on business assets will be improved. The disposal of such assets – typically holdings in unquoted start-ups – will attract CGT at the rate of just 10 per cent if they have been held for more than two years rather than the previous four years, while a rate of 20 per cent will apply for assets held for one year rather than the previous three. These changes, said Mr Brown, would create a CGT regime "more favourable to enterprise than that of the United States".

* With immediate effect, the size of companies qualifying for the Enterprise Management Incentives scheme is being doubled, to gross assets of £30m. This is intended to allow more companies to grant share options and so allow them to continue to recruit and retain employees even if they lack the cash to pay them salaries.

* Small companies will benefit from the extension of the 10 per cent corporation tax rate band and a new simplified VAT system that will be introduced in April.

In addition, the Chancellor announced that there would be assistance for small firms in bringing their payroll administration online and a scheme to help small firms gain access to capital in the regions.

There was also confirmation of another measure that had been widely called for – a new tax credit to encourage in-work training as a means of bringing UK productivity more in line with international competitors.

David Norton, tax partner with the professional services firm Andersen, was especially encouraged by the CGT move, calling it "very attractive".

However, John Battersby, a tax partner with KPMG, said this third round of changes since taper relief was introduced in 1998 created complications because, in effect, three sets of rules were in operation.

Details of the new R&D tax credit – particularly, its likely cost to the Exchequer – will not be known until the latest consultation paper is published next week.

Two other important proposals were outlined in documents issued yesterday. First, the Government published a long-awaited draft of the legislation due to be announced in next spring's Budget on the "participation exemption", which will relieve companies of CGT when selling shares in businesses in which they have been involved, such as subsidiaries. Second, there were plans for a reform of the taxation of intangibles, such as intellectual property and goodwill.