Pre-budget report: what it means to you

Andy Hardy at TaxCalc.com and former senior executive at the HMRC comments on the new landscape for entrepreneurs and businesses.

The landscape for entrepreneurs and small businesses has been dramatically changed by the chancellor’s pre-Budget report (PBR).

The good news is a variety of measures to help small businesses with cash flow over the short to medium term and to stimulate the economy so as to support employment and business. The bad news is record levels of government borrowing and increased future employment costs and taxation.

The principal measures affecting small businesses are:

•    A temporary reduction VAT from 17.5% to 15% effective from Monday 1st December until 31st December 2010
•    Deferral of the increase from 21% to 22% in the small company tax rate until 2010
•    The spreading of all business tax payments (IT, VAT, NIC & CT)
•    Up to £3 billion to help SMEs with working capital and investment needs
•    Extending loss relief carry back to 3 years
•    An increase of 0.5% in NIC
•    A new 45% tax rate in 2011 on incomes over £150,000
•    The gradual reduction of personal allowance to zero on incomes over £100,000 from 2011

VAT

The VAT reduction will impose additional costs on businesses to make the change – and to reverse them in 13 months time. Whether businesses will pass the reductions on is an open question – even the PBR figures envisage that only 50% will passed on.

Business cash-flow

There are real benefits to business cash flow. HMRC advises that it will be able to provide a decision on deferred payment proposals within 10 minutes – to take advantage of this, telephone its dedicated support line on 0845 302 1435.

There will be a new Small business Finance Scheme, European Investment Bank funds and a temporary guarantee scheme for exports will each provide up to £1 billion to help SMEs with working capital and investment needs.

Many businesses affected by the recession will now be making losses which might not have been wholly relievable against past profits. The extension of the period of carry back to 3 years will enable losses of up to £50,000 to be converted into a tax repayment helping businesses cash flow now – worth up to £10,000 for small companies or up to £20,000 for unincorporated businesses.

NIC

The increase in NIC costs, although delayed until April 2001, will not help businesses retain staff. The chancellor appears to be hoping that the recession will have ended the general economic climate improved sufficiently to enable businesses to sustain the increase at that time.

New 45% tax rate and reduced personal allowances

Although this will apply only to income over £150,000 from 2011, it will act as an aspirational disincentive for entrepreneurs. Additional tax will also be payable by those with incomes in excess of £100,000 and £140,000 because the personal allowance will taper to half and to zero over those figures.

There will be future pain for businesses from the NIC and tax changes, but the PBR does offer some help through the immediate difficulties of the recession. The question that hangs in the air is whether the chancellor’s gamble will pay off; if not, that future pain will be much more severe.

Why not sign up to our small business newsletter and learn more?

Rating

By LaunchLab.co.uk  on   Nov 25,2008

Add a comment  |  Add a rating  |  Email to a friend

Keywords

pre-Budget report    Alistair Darling    politics    FPB    FSB    tax   

Comments