Guest blog – The Budget reviewed

Anita Brook is founder of Accounts Assist a growing firm of Chartered Accountants. She’s been advising small business, sole traders and consultants for 12 years.

The Budget reviewed – it’s not all bad

There is a huge financial deficit which needs to be paid back, so money has to be found from somewhere – I wouldn’t want George Osborne’s job if you paid me – but with businesses integral to the economy’s recovery, supporting them has surely got to be part of the Government’s strategy. Here’s how the Budget might affect your business:

THE GOOD

Corporation tax
Corporation tax is being reduced for both small and large companies, plus the rates of capital allowance. The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011 – it was previously expected to rise to 22%. The small profits rate applies to profits of up to £300,000 if there are no associated companies.

For large businesses, the corporation tax rates will reduce from 28% to 27% from next April and then fall by 1% per year eventually down to 24%.

Entrepreneur relief
Entrepreneur relief gains will continue to be taxed at 10% and there will be an increase from £2 million to £5 million in the lifetime limit on gains, from 23 June 2010. This is excellent news, but unfortunately, many gains will never qualify for relief, such as the sale of a commercial property that is not associated with the disposal of a trading business.

Flat Rate Scheme
Small businesses can now start using the flat rate scheme if their VAT exclusive turnover is no more than £150,000, doubling the previous figure, but must leave if this exceeds £225,000. This will rise to £230,000 on 4 January 2011.
If your business will no longer benefit from using the Flat Rate Scheme you can leave at any time.

National Insurance holiday
By way of softening the blow of the loss of public sector jobs in less prosperous regions in the UK, the ‘NIC holiday’ has been introduced. Business in Scotland, Wales, Northern Ireland, the North of England, Yorkshire, the Midlands and the South West regions, will be exempt from paying the employer’s class 1 NICs for 12 months, for businesses employing up to 10 employees, capped at £5,000 per employee.

THE BAD

National Insurance
National Insurance was always going to rise by 1% from next April, but George has assured us that through some manipulation of the thresholds, this increase will not be felt by most people. We won’t know the exact starting point for employers and employees until the autumn budget statement on 20 October.

Working and Child Tax Credits
For families with a total income of £40,000 or more, Working and Child Tax Credits will be withdrawn gradually from April 2011. The special baby rate will be withdrawn at the same time, but the child element for less well-off families will increase by £150.

THE UGLY

VAT rise
VAT is rising to 20%. While this was widely expected, bringing it into force the first working day after Christmas (4 January) was maybe a little insensitive. If you are planning to invoice or pay in advance to avoid the VAT rise, think again. There will be a special 2.5% VAT charge on such advance sales, in situations where the customer cannot recover all the VAT on the supply, plus one or more of the following applies:

• The supplier and customer are connected
• The supplier funds the purchase
• The payment is not due for at least six months
• The value of the supply is £100,000 or more, unless the prepayment or advance invoice is normal commercial practice.

Capital Gains Tax
Capital Gains Tax (CGT) has risen from 18% to 28% however tax payers with taxable income below £37,400 will continue to pay CGT at 18%.

Worryingly, this has come into force with immediate effect, which will cause complications when calculating tax due for 2010/11. It could’ve been worse however, and is still nowhere near the highest income tax rates of 40% and 50%. If you are in the middle of arranging a large sale, you could escape the CGT rise if you have already exchanged contracts.

If you’re worried about how the budget might affect your business, seek the advice of a good accountant.