Although many will focus on Gordon Brown's decision to cut the headline rate of corporation tax from 30% to 28% - effective April 2008, it's worth noting that small businesses are to be hit with a tax hike - in three stages (from 20% to 22%) - by April 2009. The move is part of a wider initiative aimed at tackling 'tax motivated incorporation'.
To encourage growth through investment an Annual Investment Allowance is being introduced - the intention being to target investment support on all businesses that are investing for growth and help alleviate the cash flow constraints which confront small and growing businesses.
In addition, the capital allowances regime is being reformed so that allowances better reflect true economic depreciation, ensuring that business investment decisions better reflect commercial rather than tax considerations, and removing outdated and unjustified distortions.
The headline SME (small and medium enterprises) R&D (research & development) tax credit rate is being increased from 150% to 175%; and the R&D tax credit rate from 125% to 130% - effective April 2008.
The R&D tax credit works by allowing companies to deduct up to 150% of qualifying expenditure on R&D activities when calculating their profit for tax purposes. Companies which are SMEs can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from the HM Revenue & Customs.
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