In the 2008 Budget, the Government unveiled more than 20 new measures to simplify the tax system, but introduced 107 additional tax proposals. Here are the changes directly affecting small firms in the UK:

Corporation Tax

Small firms' contributions are set to rise to 22% by April 2009, but the higher rate paid by bigger businesses will be cut from 30% to 28% from April 2008.

Capital Gains Tax (CGT)

An entrepreneurs relief of 10% (the same rate as the abolished taper relief) has been introduced, but only for capital gains of up to £1 million, after which entrepreneurs will have to pay a flat 18% rate. There will be no indexation on assets owned before 1998, when taper relief was introduced, but indexation relief, by which CGT calculations were adjusted favourably to take account of inflation, is also being removed. Assets from before March 1982 will have to be revalued from that date.

Income shifting

The Government has delayed plans to abolish ‘income shifting', a tax incentive whereby family firms, in particular, ease their tax burden by distributing profits as dividends to employees. Following widespread criticism , this has now been postponed until April 2009 to allow for further consultation.

Transport taxes

VAT on fuel went up by 2p in October 2007, and Mr Darling was expected to schedule another 2p rise in April. However, this has now been delayed until October 2008.

Mr Darling announced that he would be inviting tenders for new road pricing technologies. The Government is also continuing to provide funding for local ‘congestion' charges, which will affect many smaller hauliers, and other businesses which rely on freight transport for supplies and deliveries.

In addition, from April, the figure on which fuel benefit is calculated will increase from 14400 to 16900 x CO₂ emissions. Business owners are advised to check if it would be more cost-effective to pay for their own fuel and then submit a fuel-only mileage claim. Mr Darling also announced tax incentives to help encourage businesses to use ‘greener', more fuel-efficient company cars.

Education and skills

An extra £60 million has been pledged for ‘Train to Gain' initiatives, including additional apprenticeships, in order to help employers train their staff and thereby benefit their businesses.

Red tape

The Government revealed plans to cut red tape as part of its 10-year enterprise policy. It has published a document entitled ‘Enterprise: Unlocking the UK's Talent', a strategy designed to boost enterprise skills and knowledge, help new and existing businesses get funding to start up and grow, and ease the burden of regulation. One of the measures includes exempting or simplifying enforcement of new regulation of small firms ‘wherever possible'.

Small Firms Loan Guarantee scheme

Funds available through the Small Firms Loan Guarantee Scheme, which provides firms with access to credit, will increase by 20%, from £60 million. However, this is only a temporary measure applying over the coming year.

Public procurement

Mr Darling set a target of 30% of public sector contracts to be procured by small businesses. An advisory committee will also be created in order to reduce the barriers they face.

Women entrepreneurs

Capital funds of £12.5 million will be made available to encourage more women entrepreneurs.

Capital allowances

The introduction of an Annual Investment Allowance (AIA) means that businesses will receive a 100% write off of up to £50,000 per year. If their accounting period straddles 5 April, then the AIA is reduced in proportion to the part of the accounting period following that date. It is advisable to delay investing in capital goods, such as plant and machinery, until the start of the new tax year. AIA does not apply to cars.

Writing Down Allowance (WDA) has been cut from 25% to 20%. Integral fixtures in a commercial building, which used to be part of the general pool and receive 25% WDA, will now go into a separate ‘long life' pool. Long life assets currently only receive 6% WDA, but, from April, this will increase to 10%. In addition, the definition of integral fixtures has been widened. Currently, lighting systems which are not specialist lights, floors or ceilings comprising ventilation and heating systems, cold water systems and ‘active facades' do not qualify for Capital Allowances, but after April they will. Small firms will now be able to write off historical capital expenditure worth less than £1,000 against their taxable profits in one year, on items such as office equipment.

Business property taxes

The Government will remove tax allowances on buildings and fittings, affecting businesses in the tourism and hospitality sectors, in particular. The reduction in empty property relief will be another added burden.

Enterprise Management Initiative (EMI) schemes

EMI schemes, whereby key employees are granted share options, have been extremely popular. The Capital Gains Tax (CGT) changes will make them less attractive. Under taper relief, employees paid 10% tax if the options were exercised and the shares sold. Now, unless they own 5% of the total shares in issue – in most cases highly unlikely - they will pay 18% because they will not qualify for the Entrepreneurs Relief. In addition, once the Bill receives Royal Assent, only firms with fewer than 250 employees will be able to have such a scheme.

Income tax

The 10% starting rate of income tax has been removed. Only two bands will exist for earned income – 40% for the higher rate and 20% for the basic rate. Applicable to taxable income up to £36,000, the basic rate has been reduced by 2%. One effect will be that pension contributions will receive less tax relief from April. Although some pension companies are increasing the level of contributions so that the amount paid into the scheme remains the same, others are not. In these cases, unless employees increase their payments, less will be paid into the scheme.

With thanks to Andrew Needham, Pat Cobham and Mike Benson for their assistance in compiling this report.