Budget 2010: what does it mean for small business?

Chancellor of the Exchequer George Osborne delivered his emergency budget statement on 22 June 2010. The budget introduced a number measures designed to help businesses take advantage of an economic recovery. For a full assessment read our guide to the Budget 2010.

Here is an outline of the key issues affecting small businesses:  

Cuts to National Insurance Contributions (NIC)

• The threshold for NIC payments rises by £21 per week.
• Starts: April 2011.
• What this means for you: Taking on staff will become more affordable from next year.

Cuts to Corporation Tax

• A five-year plan to reduce the main rate of Corporation Tax from 28 per cent down to 24 per cent.
• Starts: April 2011.
• What this means for you: A clear route map for plans for investment in your company.

Cuts to small profits rate of Corporation Tax

• A plan to reduce the rate from 21 per cent down to 20 per cent.
• Starts: In financial year 2011/12.
• What this means for you: It may be time to restructure your business. If your profits are less than £300,000 your base tax rate will decrease. Sole Traders may wish to take advantage of this small reduction by incorporating. The self-employed should consult a professional tax adviser for advice on their individual circumstances.

Cut to income tax

• An increase in the personal allowance for basic rate taxpayers under 65 of £1,000.
• Starts: April 2011.
• What this means for you: A reduction in the overall tax burden for your employees should relieve pressure from wage demands.

Entrepreneurs' Relief

• Gains qualifying for Entrepreneurs' Relief will be taxed at a rate of 10 per cent and the lifetime limit of gains qualifying for Entrepreneurs' Relief will be raised to £5 million from the previous figure of £2 million.
• Starts: Immediately.
• What this means for you: Encouraging news for those who create and build small businesses. If you are planning business sales and sales of assets in the near future you should take advice from a tax professional now.

Other support
The Enterprise Finance Guarantee (EFG) fund will be increased by £200 million to support £700 million of additional lending until 31 March 2011. This is good news if your viable small business is finding it difficult to access finance from conventional sources. Find out more about the Enterprise Finance Guarantee. 
The HMRC's Business Payment Support Service has been preserved so businesses can still defer and spread their tax and VAT liabilities in certain circumstances.

Tax rises that affect businesses
The following measures are designed to increase revenues to HM Treasury.

An increase in VAT from 17.5 to 20 per cent

• Starts: 4 January 2011; the flat rate scheme will be adjusted accordingly.
• What this means: Small businesses should plan well-ahead to avoid any adverse effects on trade.

An increase in Capital Gains Tax (CGT)

• Capital Gains Tax will rise from 18 to 28 per cent for those liable to income tax at the higher and additional rates.
• Starts: Immediately.
• What this means: This tax increase will hit the highest earning individuals. An independent financial adviser will be able to assess your personal CGT liabilities and ensure you are handling your assets in the most tax efficient manner.

Reductions in Capital Allowances

• Plant and machinery rates will be reduced by two per cent.
• Starts: Will take effect from April 2012.
• What this means: For larger manufacturers the loss of this rate relief will be compensated by the reduction in corporation tax. All companies, especially smaller manufacturers will need to review their depreciation policies.

What to expect in future
Forthcoming measures announced by the Chancellor will include:

• A review of small business taxation.
• All central government tenders to be made available for free online.
• A national infrastructure plan.
• A Green Investment Bank for low-carbon projects.
• A consultation to review tax on intellectual property, research and development tax credits and the proposals by the Dyson review promoting research and innovation.
• Temporary legislation to extend small business rate relief from October 2010.