Gordon Brown's pre-budget report has particular tax consequences for small and medium-sized businesses. Here's a round-up of what the chancellor is about to do for your economic well-being.
The chancellor's pre-budget report makes moves towards easing the burden of tax and bureaucracy on small and medium-sized firms. For this he is to be congratulated, but many would consider that he still has far to go. Some would even argue that he has sacrificed long-term policy to please pensioners and motorists in the short term.

What does the report mean for your business and does it go far enough?

Urban regeneration
A £1bn package was announced to help make Britain's towns and cities better places to live, and so stimulate enterprise and employment in these areas. This was in response to the recommendations made in Lord Rogers' urban taskforce report. The main measures include:

  • Exemption from stamp duty on property transactions for disadvantaged communities to stimulate the property market and encourage urban renewal. This will take effect from April.
    The benefit of this tax cut is questionable since property values in such areas are likely to be below £60 000, the current nil-rate band for stamp duty, and early indications from the building industry suggest a reduction in the rate of landfill tax would have been preferred.
  • Accelerated tax credits for the clean-up of contaminated land in order to make the regeneration of derelict sites more viable. This means that property investors will no longer have to wait until the land is sold before they receive their tax credits.
  • 100% capital allowances for creating "flats over shops" for letting.
  • 100% capital allowances on conversions of other commercial premises into flats for letting.
  • VAT reform to encourage more property conversions for residential use, including a cut in the rate of VAT to 5% for residential property conversions and the removal of the VAT burden on the renovation and sale of houses that have been empty for at least 10 years.

    Value added tax
    The report has paid particular attention to newly VAT-registered small and start-up businesses.

  • The cash accounting limit will be increased from £300 000 to £600 000 a year, greatly increasing the number of firms liable for VAT on receipts and payments, rather than invoices. This comes into effect from April 2001.
  • The turnover threshold below which businesses may account for VAT on an annual, rather than a quarterly, basis is to be extended from £300 000 to £600 000 a year. In addition, the government is considering abolishing the 12 month trading test for entry into the scheme.
  • From April 2001, businesses with an annual turnover of less than £100 000 will be able to calculate their VAT liability on a flat rate, rather than having to keep detailed accounts of input and output VAT.
  • The VAT registration threshold (as it applies to all firms) will increase in line with inflation.

    Business taxation
    The report proposes the extension of business taper relief to all employees of non-trading investment companies, enabling employees who hold shares in their employer's company to sell them at reduced rates of capital gains tax.

    The essence of business taper relief is that the longer shares are held, the lower the tax rate. After four years the rate falls from 40%, down to 10%. To restrict abuse, it is proposed that "close companies" (controlled by five or fewer individuals) will not benefit from the new rules.

    The twist in the tale is a substantial rise the cost of National Insurance for both self-employed and employed. The upper limit on contributions is to be raised to £29 000 after April 2001, which equates to an increase of 7.5% – three times the rate of inflation.

    Income tax allowances and rates for 2001/2 are to increase in line with inflation.

    Construction industry scheme
    More subcontractors will qualify for the CIS5 certificate. In addition to this, subcontractors will be able to provide payment details to the Inland Revenue electronically, rather than having to present a certificate to the contractor in person.

    The CIS5 turnover threshold has been reduced from £3m to £1m per year and will be effective from 1 December this year. Partnerships will qualify for CIS5 on the same basis as companies, from April 2001.

    Transport
    Excise duty on all fuels has been frozen until April 2002, with excise duty for ultra-low sulphur petrol cut by 3p. An investment fund of £100m will be created for scrapping old trucks or converting them to meet environmental standards. Vehicle excise duty will be abolished for tractors, whilst cars under 1500 cc will qualify for a reduction in excise duty of £55 a year.

    Savings and investments
    The Individual Savings Account's limit of £7000 pa (including up to £3000 in cash) is to be maintained for a further five years to April 2006, and provisions will enable 16 and 17 year olds to open cash ISAs. The rules for on-going PEPs will be aligned with those for ISAs by next April.

    The pre-budget statement in a nutshell

    • Stamp-duty exemption in disadvantaged areas
    • Tax relief on clean-up costs of contaminated land
    • Full capital allowances for flats on commercial premises, including above shops
    • 5% VAT rate for residential conversions
    • Zero-rate VAT on the renovation and sale of long-vacant houses
    • Small business to calculate VAT annually
    • Taper relief extended to non-trading companies
    • Reduced capital gains tax for employees’ shares
    • Increased in upper limit of National Insurance contributions
    • More subcontractors to qualify for CIS5 certificate
    • CIS5 turnover threshold increased

    • Postscript

    Nick Antoniou is a partner at Smith & Williamson Chartered Accountants. He can be reached on 020-8446 4371 or na@smith.williamson.co.uk.