The Emergency Budget – How small businesses are affected

The Emergency Budget - How small businesses are affected

Hopefully you were here with PAH Accounting where we were reporting live the key fundemental budget points that affect small business. If not I have produced a handy summary into these factors below with some commentary and opinion to go with it!

George Osborn, the new chancellor presenting his first Tory budget.  He got stuck straight into Labour, commenting on the perceived errors of the past. He stated that this was an ‘unavoidable’ budget and that he is aiming to ‘balance the books within 5 years’. Some bold predictions for sure!

In the his summary Mr Osborn wanted stressed his pre budget talk that this was to be  ‘tough but fair ‘. Again getting at the previous regime this budget intended to ‘Pay for the past and plan for the future’. On key element also was his aim to encourage lower spending rather than higher taxes. That has to be good news.

So what were the main points that affect small business:

Employers NI

The planned rise of National Insurance rates in April 2011 by 1% is to go ahead. However, the threshold for paying Employers National Insurance to be increased by £21 per week above indexation.

New business outside of London and the South East are to be exempt from Employers National insurance on its first 10 employees.

Corporation Tax

The rate of small company Corporation Tax reduced to 20%. Labour had planned to increase this to 22%; however, they had held this off for a year. This is good news for small companies.

For larger comapnies the rate is to be reduced from 28% to 24%

Personal Tax

The Personal Allowance is to be raised to £7,475 from April 2011; however, the basic rate limit is to remain the same.

Along with the decrease in Corporation Tax this may give rise to tax planning opportunities for Sole Traders who are looking at incorporation.

Capital Allowances

There is a reduction in Capital Allowance rates from 20% to 18% . This therefore means that tax relief on assets will occur over a longer time frame.

On top of this the Annual Investment Allowance will be reduced to £25,000.

Most smaller business will not really be affected by this. In excess of £25k of Capital Expenditure is quite a lot for a smaller business so most will still get 100% relief.

Business Rates

The Government has already stated that they will freeze payments of certain backdated business rates. Legislation is being laid for a temporary increase in Small Business Rate relief from October 2010.

Capital Gains Tax

This is to remain at 18% for lower rate taxpayers; however, will be increased to 24% for those in the higher rate band.


This was the real killer and brought about a rapturous response from the opposition bench.

As anticipated by many the VAT rate is to rise to 20% from 4 January 2011.

This naturally alleviates any of the other cuts in tax made. As with any business to business organisations the affect on this will be minimal; however, for business to consumer this could affect a lot of people. The Pub trade, particularly those that sell food, will be hit hard by this. Despite a lack of increase in duties food resellers buy a lot of items at zero rate but have to sell at Standard.

It was quite important that they delayed this to give sufficient time for businesses to adjust their systems. With the previous VAT changes it was a logistical nightmare for a lot of organisations.

** See the reaction to the VAT increase here VAT rate rise – reaction

IR35 review

Not mentioned in the speeches but noted in the budget text is the governments intention to review the issues surrounding IR35. This is a key criteria for smaller contractor businesses. More information is to follow on this.

Tax compliance and collections

It was again hidden in the text, although widely anticipated that the Government is to reform and simplify the tax structure. As part of this it will be using debt collection agencies to collect additional tax revenue from existing debts.

Alcohol, Cigarettes and Fuel

Not strictly a ‘business’ topic however it is often the one peolpe are looking for . Note that there is to be no increase in duties. And, as if it couldn’t get any better the cider increase is being reversed!

There was an interesting comment made regarding fuel and that the Office for Budget Responsibililty have been asked to assess the options of a fair fuel stabiliser, presumably designed to ensure significant fluctuations don’t occur as often.