‘Small business mentioned in budget’ shock!
Last Updated on 22 June 2010
Well Mr Osborne has spoken. There's plenty of analysis of the coalition's emergency budget elsewhere. Nick Robinson says 'age of austerity' and Robert Peston says…well, something I didn't quite catch.
As promised, I've been listening to it all and reading the press releases, so you don't have to.
Here are some of the areas I think will affect small businesses like you and me.
Value Added Tax
VAT up to 20% (from 17.5%): – the rise from 4th Jan 2011 (after the New Year bank holiday) may persuade some to register for VAT. Getting 20% back off business purchases is a pretty attractive proposition with a rate this high.
VAT Flat Rate Scheme: – because the standard rate is going up, so is the flat rate. For example the Film, radio, TV and video category is currently 10.5%. This will go up in January to 13%. Read more about the flat rate changes: http://www.hmrc.gov.uk/budget2010/bn45.htm
(The reduced rate of VAT will be unchanged at 5%, by the way. And exempt items like kids' clothing and newspapers will remain exempt.)
Income tax and National Insurance
Personal allowance:- individuals and sole traders will be allowed to have an income of £7,475 before paying any tax (up from £6,475). The rates of income tax stay the same.
National Insurance: sole traders' class 2 NI contributions might be unchanged at £2.40 per week. They'll come to a view about it in the autumn. But class 4 NI will be 9% (up from 8%) and the top rate will be 2% (up from 1%). Both from April 2011.
If you're operating as a limited company, class 1 NI on an employee's salary is 12% (up from 11%) and the employer's contribution is 13.8% (up from 12.8%), but with a 'tax holiday' on the latter if you set up from today, and if you employ fewer than 10 people, and set up outside London and south-east. (I'm still checking thresholds and other details on this…so don't quote me…will post again on this.)
Corporation tax for small businesses
Also for limited companies – the small business rate of corporation tax will be reduced to 20% (from 21%). In fact this is the first time I remember a Chancellor talking about the small business rate in a budget speech. He also said he recognised the importance of helping the smallest of businesses. Collectively they (we) are a significant force.
Capital allowances
This year you've been able to put up to £100,000 of capital equipment against your turnover to reduce your tax bill. This is called the Annual Investment Allowance.
The cap has been reduced to £25,000 from next year – a reduction of 75%. This seems draconian, but most people I work with will not spend that much on capital equipment in a year. And even if you did you can spread the costs above that cap at a rate of (typically) 20% until April 2012, when it will go down to 18%.
Still checking the small print. If you want to have a look yourself (with a stiff drink close at hand*) try the treasury website:
http://www.hm-treasury.gov.uk/junebudget
Let me know how you feel the budget will affect you and your business. And feel free to point out anything I've missed.
Now – time to go out and enjoy the sunshine!
*I suggest cider or perry – the planned increase in duty has now officially been abolished
Posted on 22 June 2010
