Why Budget 2011 is good for creative businesses


The Chancellor has introduced extra tax reliefs for innovative firms and entrepreneurs.


The rate of the SME research and development tax credit is to increase to 200 per cent as from April 2011. The plan is that it will rise further, to 225 per cent, as from April 2012.


The R&D credit scheme is also to undergo a simplification process:-


– Abolishing the rule limiting a SME company’s payable R&D tax credit to the amount of PAYE and national insurance contributions it pays;


– Abolishing for all companies the £10,000 minimum expenditure condition.


A response will be published in May 2011 following consultation on R&D tax credits and in light of the recommendations of the Dyson review.


A detailed consultation document on the Patent Box will be published in May 2011.  The Chancellor confirmed that the Patent Box regime will be an optional regime involving a 10 per cent tax rate for profits arising from patents (and not other intellectual property rights) on or after 1 April 2013 where the patents are first commercialised after 29 November 2010.  It has already been announced that this will be in the Finance Bill 2012.


To encourage entrepreneurs, as from 6 April 2011, the lifetime limit on capital gains that qualify for the 10 per cent rate under the Entrepreneurs’ Relief scheme is going up from £5 million to £10 million.


The rate of income tax relief available under the Enterprise Investment Scheme (EIS) climbs from 20 per cent to 30 per cent from April 2011.  The Government is planning to double the amount that any individual can invest through the EIS, to increase the size of company that can qualify for the investment, and to raise the limit on the amount that can be put into a company by 400 per cent.


The chancellor has announced the government intends to keep IR35 in its current form because abolishing it would put tax revenues at risk. However, budget 2011 announces a consultation on a possible merger of income tax and national insurance.


The Digital and Creative plan for growth (page 108) was published and includes Government support of the establishment by industry of a Creative Industries Council, which can provide a voice for the sector with the financial community and coordinate action on barriers to growth. The Executive Summary states that:-


“Digital and Creative industries will particularly benefit from: an overhaul of development and planning rules to support superfast broadband roll-out; substantially reducing burdens of the communications and media regulatory framework; and significantly increasing the level of support to IP-intensive businesses to ensure they can exploit their IP domestically and overseas.”


My colleague Rachel Marsdin, a Tax Partner at Moore and Smalley, will cover some of these announcements in more detail on Thursday 12th May.