What the Emergency Budget means for you
The Emergency Budget is out in the open...
What does it mean for you if you own a small service-based business?
Here’s an outline.
The new Government has promised various reviews, consultations and discussions with businesses, such as a review of the taxation of intellectual property and the support R&D tax credits provide for innovation.
It’s also planning to create an independent Office of Tax Simplification, which as far as I’m concerned personally is great news. I don’t think you should need to wade through a fat tome of rules just to fill in your tax return.
We’re also promised “new principles that the high street banks will follow when lending to SMEs”. Here’s hoping those principles make it easier to access funding.
That’s certainly what the Government seems to be planning. Today’s Budget increases the money available for lending to small businesses through the Enterprise Finance Guarantee, by £200 million to £700 million until 31st March 2011. And so that this money isn’t tied up in red-tape, they’ve set a target of 20 business days for lenders to process loans under this scheme.
There’s a new Growth Capital Fund, which aims to raise an extra £37.5 million to support “small businesses with high growth potential”.
The planned tax on landline phones won’t go ahead, and there are plans for three pilot schemes to bring superfast broadband to “hard-to-reach areas”. Where these are hasn’t been made clear.
Remote rural areas could also benefit from a fuel duty discount.
VAT will go up to 20% from 4th January 2011. There’ll be no change to the reduced rate (5%), and on current plans, the standard rate of VAT won’t be applied to anything additional such as food.
Unlike the drop to 15%, this won’t be a temporary change in the rate.
It might be tempting to bring sales forward to avoid the increase, but beware, anti-forestalling legislation is promised and will be brought in from today!
The flat rate scheme percentages will also go up to reflect the increase.
The personal allowance for under 65s will go up to £7,475 from £6,475 in April 2011.
The last Government’s plans to increase National Insurance contributions by 1% in April 2011 have not been scrapped, but the threshold at which employers pay National Insurance will go up by £21 a week above indexation in April 2011, and the new Government estimates employers will pay no National Insurance on 650,000 more employees as a result. So that’ll ease the pressure on employers a bit.
There’s also a new scheme in the pipeline to give new businesses in certain areas of the UK a boost by reducing their staff costs.
If you start a business in one of the designated areas in the next 3 years, you won’t have to pay the first £5,000 of employer’s NIC due in the first 12 months of employment for each of the first 10 employees you hire in the first year of your business.
The plan is to start that scheme no later than September 2010, once all the legal hoops have been jumped through. BUT, assuming the scheme goes ahead, any new businesses starting today or later will also qualify.
But where are these “designated areas”?
To qualify, the business must be based in Scotland, Northern Ireland, Wales, or one of the following regions of England: North West, North East, Yorkshire and Humber, West Midlands, East Midlands, South West.
So if your business is going to be in London, the South East or the East of England, I’m afraid you’re out of luck!
Good news if you run either a small or a large limited company.
For small companies (annual profit under £300,000), the rate of corporation tax will fall from 21% to 20% in April 2011.
For larger companies, the rate, which is 28% at the moment, is to fall by 1% each year from April 2011, until it’s dropped to 24%.
Capital allowances (applies to both income tax and corporation tax)
These have been tightened.
The Annual Investment Allowance is to drop from £100,000 to £25,000 from April 2012. The Government thinks that over 95% of businesses will still have all their eligible capital investments covered by this amount - and certainly that’s likely to be true of small service-based businesses.
Capital gains tax
This is where a big change was predicted - and sure enough we’ve got one, though it’s not as hard-hitting as some suggested.
Capital gains tax goes up from 18% to 28% for higher-rate taxpayers from midnight tonight - and to my knowledge, it hasn’t been said this is just on non-business assets.
But the CGT entrepreneurs’ relief lifetime limit will go up to £5 million from £2 million - though the budget report doesn’t say from when that will happen.
What wasn’t there?
Nothing’s been mentioned about income-shifting between spouses, or attacking the low-salary high-dividend rate that can be so efficient in saving tax for company directors.
And while a review of IR35 has been promised, it hasn’t arrived yet!
A bit of a mixed bag!
And still a bit of watching of this space to do!
The BBC have put up a calculator that lets you go a fair way to working out whether you'll be better or worse off after the Budget, and by how much.
- Video: an introduction to VAT by HMRC
- You deserve better: why you need to break up with your spreadsheet
- Simple ways to save yourself future Self Assessment stress
- Making Tax Digital consultation response published
- Not feeling (a) fine? You might have a ‘reasonable excuse’ for not completing your tax return