Reflecting the need to support business and support the fragile growth in the UK, removing reliance from consumer spending, the chancellor has announced a number of measures and extensions to existing business tax reliefs. The measures are designed to cut the cost of manufacturing and provide support across the UK.

These measures include extension of the annual investment allowance (AIA) to 2015, extension of the seed enterprise investment scheme (SEIS) and revision to the R&D tax credit scheme for small business.

 ‘We are going to double Annual Investment Allowance to £500,000 from next month and extend it to the end of 2015,’ said chancellor George Osborne.

This will be a welcome move for business but reflects all the movement around this tax relief, which is a good benefit for business but needs to be more stable. The AIA was going to end this year and as it has a seven-year timing benefit it will be seen as a boost for business.

Bill Dodwell, head of tax policy at Deloitte said: ‘The main business tax measure is the boosting of the annual investment allowance – this allows businesses to get immediate tax relief on investments in plant and equipment. While the relief is welcome, constantly changing this relief is complicated to understand and may not have quite the beneficial effect intended.’ 

Chris Sanger, EY's head of tax policy said: ‘Extending and doubling the Annual Investment Allowance to £500,000 provides immediate tax relief for investment. Costing over £1.5bn in the first five years, this cash bonus should provide just the incentive business needs.’

Legislation will be introduced in Finance Bill 2014 to increase the current temporary maximum of the AIA from £250,000 to £500,000. The legislation will also extend the period of the temporary increase. These changes will have effect from 1 April 2014 to 31 December 2015 for corporation tax and from 6 April 2014 to 31 December 2015 for income tax.

While the relief is welcome, constantly changing the annual investment allowance is complicated to understand and may not have quite the beneficial effect intended

In addition, in a measure targeted at small businesses, the Chancellor said: ‘I’m raising the rate of the R&D tax credit for loss-making small businesses from 11% to 14.5%.’

This will increase the rate of the cash credit payable to SMEs that conduct research and development (R&D), but do not have corporation tax liabilities.

Genevieve Moore, a tax partner at Blick Rothenberg LLP, said: 'The way the R&D tax relief works for SMEs means the real cash impact will be an increase in the repayment due to the SME from 24.75p to 32.63p for every £1 spent on qualifying R&D. 
 
'The arrangements effectively mean the government will now be subsidising one third of the cost of the R&D, compared to one-quarter before this budget.

'The increased relief is substantially better than it has ever been and will be a big boost to small and medium-sized companies who are investing in innovation but not yet making a profit from their efforts.'

In another initiative aimed at small business, the Seed Enterprise Investment Scheme (SEIS) will remain and will be placed on a permanent basis with any time limits removed.

The Chancellor claims SEIS has been a success, despite complaints from companies applying for the scheme, which is seen as highly complicated by tax advisers and business. Since it was introduced in April 2012, around 1,600 companies have raised over £135m from SEIS. 

From Finance Bill 2014 the capital gains tax (CGT) relief for reinvesting gains in SEIS shares will also be formalised on a permanent basis. These changes will come into force from Royal Assent to Finance Bill 2014 and, for CGT reinvestment relief, have effect for 2014 to 2015 and subsequent years.

The government will also review whether theSEIS  tax reliefs could apply where individuals make investments in the form of convertible loans. In order to reduce abuse of the scheme by high risk investors, it will change the eligibility criteria of venture capital schemes to avoid subsidising low-risk activities that already benefit from certain government programmes. 

However, some commentators warned that draconian measures to stifle investment could be counterproductive.

Yvette Nunn, president of the ATT, said: ‘It is a fine line between cracking down on tax avoidance and not deterring those keen to take advantage of VCTs [Venture Capital Trusts] and EIS [Enterprise Investment Schemes]. We must be mindful of anti-abuse rules but make sure that they do not diminish the desire of those willing to help small businesses to grow from doing so. In particular, the rules should not be made any more complex than they are already.’

The Enhanced Capital Allowances (ECA) scheme for zero emission goods vehicles will be extended to March/April 2018. However, to comply with EU state aid rules, ECA will be limited to businesses that do not claim the government’s plug-in van grant. The legislation will be enacted in Finance Bill 2015.

‘The existing compensation scheme for energy intensive industries will also be extended for a further four years to 2019-20,’ Osborne confirmed.