Budget good for design but could be a lot better

The proposed new design centre in Newcastle announced in Gordon Brown’s Budget last week is certainly a step in the right direction for the industry. The intention is to build on the reputation of Northumbria University’s School of Design. There is, however, little information about the amount of public funds to be made available for this project.

Given his commitment to make the UK a world leader in innovation, design and technology, the Chancellor could have done more for the design industry. At first glance the Chancellor’s pledge to enhance Research and Development tax credits for mid-sized companies looks like good news for the industry, but unfortunately it is unlikely that creative firms in particular will benefit from these credits. Making the case for claiming them can be a long and painful process.

Given the dynamics of many companies in the sector and, in particular, the increasing appetite for corporate acquisitions and disposals, Capital Gains Tax, and the availability of Business Asset Taper Relief, is something of a pre-occupation. BATR has the effect of

reducing the rate of tax to as little as 10 per cent, which most entrepreneurs regard as a reasonable impost (at least, compared with Income Tax at 40 per cent and National Insurance, a tax by another name, at 13.8 per cent).

Thankfully, the Chancellor has left the capital gains regime largely untouched, save for some fairly esoteric anti-avoidance provisions.

Brown has recognised in his Budget the benefits of in-work education and training. Starting in September, employers will be able to make payments free of tax and National Insurance of up to £15 000 per academic year to employees attending full-time courses at recognised educational establishments. The importance of investing in employees through profit-sharing and training was also a significant finding from our recent research. This is a particular issue for the creative industries, where staff talent is so strongly linked to business success.

It is disappointing that the Chancellor did not take the opportunity to raise the threshold below which smaller companies pay a reduced rate of Corporation Tax, currently 19 per cent. Although the rate of tax has been reduced, the threshold has not moved since 1994 and more and more companies will fall into the marginal rate (37.25 per cent) and full rate (30 per cent) tax brackets.

Graham Morgan

Corporate and business tax partner

Willott Kingston Smith

London W1F