While this Budget may be remembered as the launch pad for the political debate that will determine the outcome of the next General Election, there was plenty to interest the business community, explains Ian Washbourne at Graham Paul.

The biggest impact for small businesses is the closing of a tax loophole for company owners who legitimately avoid tax by paying themselves dividends as well as a salary, with a new 19% tax rate on "distributed profits". Those likely to be affected are companies or groups with profits chargeable to corporation tax below the threshold for the small companies’ rate who make distributions to non-company shareholders, explains Ian.

Many small incorporated businesses are likely to be affected by this and it’s thought Gordon Brown has introduced this measure to bring the tax on dividends in line with the tax rates on small businesses. This puts matters on a more balanced footing by ensuring that when profits are distributed to non-company shareholders by a company or group, profits are charged at a minimum rate of corporation tax.

Companies or groups with annual profits below £300,000 will have to pay at least 19% corporation tax on dividends that are paid to shareholders who are individuals or trusts. The minimum rate will apply to distributions made after 31 March 2004. The 0% starting rate will only apply to profits that are retained or distributed to other companies. The measure, which aims to reduce the advantage of incorporating a business, falls short of the imposition of national insurance on dividends that many people expected, says Ian. The government is also considering measures to strengthen anti-avoidance legislation on loans made to shareholder directors of close companies.

Meanwhile, the Chancellor also increased investment incentives for small firms, by raising the investment allowance from 40% to 50%, for one year initially. Venture Capital Trusts will enjoy 40% tax relief on investments of up to £200,000, and the threshold for VAT registration has been raised to £58,000.

Many rates, including income tax and national insurance contributions, stay the same and allowances increase by statutory indexation. The single universal regime for pension arrangements has been delayed until April 2006. First year capital allowances for small businesses have been increased, although the 100% allowance for expenditure on computers has not been extended. There are also measures to clarify and amend stamp duty and tax proposals, modernise the taxation of trusts and there are several anti-avoidance provisions.

For a full review of the Chancellors Budget click here.