No-one expected to benefit from the emergency budget – the only question is, how bad was it? We’ve analysed the final report and crunched the numbers to give you a summary of the key points that affect business. Click here to read more or you can watch our video budget special on the CBHC TV page
If the UK government was a PLC, the receivers would be waiting in the wings by now. Last year the deficit equated to more than 25% of spending – a shortfall which had to be addressed by the coalition. Greece’s situation has acted as a wakeup call, and seen in this context, the emergency budget hasn’t been too bad.
That’s not to trivialise the impact on the public sector by any means – and there will be a knock-on effect on private companies who rely on public sector contracts. However within the limited confines of this newsletter, we’re going to focus on what the budget means for private business.
From a business perspective, this budget was far less severe than anticipated. We expected steep increases in the rate of Capital Gains Tax and VAT, not to mention other tax increases and loss of reliefs, but our fears proved unfounded. By and large it is a safe budget for SMEs.
Retained from the previous budget:
The new budget builds on the former, and several positive measures have been retained. The Enterprise Finance Guarantee Scheme (EFG), a fantastic source of funding for SMEs which provides access to £1m of unsecured finance per tranche, has survived, as has the Capital Growth Fund. Furthermore, bank lending targets have been upheld and stamp duty is still frozen for first time buyers up to £250,000.
Capital Gains Tax:
CGT has been top of the agenda for some time, with fears of vast rate increases at the forefront of business owners’ minds. However, while the rate has been increased to 28% for higher rate tax payers, the 18% rate still exists and entrepreneur’s relief of 10% on the first £2m of lifetime gains has been extended to £5m regardless of income tax rate.
Some flexibility still exists in the system and, on a positive note, business owners will be encouraged to retain cash in the business, building the value of the balance sheet and making the company more attractive to investors. This approach presents an opportunity to release capital from the business at a lower rate of tax then by taking a high salary. Talk to our tax department to find out more.
Income Tax Personal Allowance:
Another bonus for the individual, the tax free personal allowance has increased by £1,000 to £7,475 – with a commitment to increase it further to £10,000 in future years.
Corporation Tax:
We were pleasantly surprised by the commitment to reduce the main corporation tax rate for large businesses to 24% by 2014. Another boost came in the form of a 1% reduction in the rate for small companies’, which came as a welcome departure from the 22% that was previously planned.
National Insurance:
Increases in NI are inevitable, however there has been a marked deviation from the previous budget in that employees will now bear the brunt of tax hikes. The employer’s contribution threshold will increase by £21/week above the rate of inflation from April 2011. Taking the average salary of £25k as an example, this will mean an NI increase of around £193 for the employee and £42 for the employer.
While the burden on the employer is clearly much reduced, it’s important to be aware that employees will be feeling the pinch, which means they may need additional support or feel pressure to find higher paying work. Now more than ever it’s important to communicate with valued staff and ensure they can share any financial concerns with you.
Capital Allowances:
This is a case of bark worse than bite. It’s true that the annual investment allowance has been cut from £100,000 to £25,000 with effect from April 2012. However, considering that 97% of businesses spend less than £50,000 per year on plant and machinery anyway, the impact won’t be that significant.
The writing down allowance for main pool assets will be reduced to 18% from 20%, and the special asset pool rate reduced to 10% from 8% – also from April 2012.
These are just some of the key points included in the budget that matter to businesses – however clearly there is a lot more relating to personal finance, funding, saving and tax planning that we could cover with more time and space. Click here to see the budget explained on video, or as always, please feel free to contact us to review how the budget affects you and your business.
