7 April 2010
With the calling of the General Election for 6 May 2010 it is not completely clear whether all the measures announced in the Chancellor’s recent Budget will be enacted.
One of the last acts of the current parliament will be to pass a Finance Bill. This is needed to ensure that we all keep paying tax!
However, it is worth reviewing the proposals to understand their possible impact on individuals and businesses.
It is fair to say that entrepreneurs and small businesses are the real winners, albeit in a modest fashion, but the big decisions will be made later on in the year post Election.
Considering some of the specifics: -
Cash Flow: Cash flow continues to be a major issue for British businesses so the small business package is welcome.
The initiatives announced will free up precious cash flow:
- doubling the Annual Investment Allowance to a £100,000 threshold to accelerate tax relief on capital expenditure
- temporary reduction in business rates
- doubling of Entrepreneurs’ Relief therefore increasing the relief on capital gains tax
- moving HMRC’s ‘Time to Pay’ scheme to a statutory basis
The Government’s decision to put the Business Payment Support Service (BPSS) on a permanent footing is welcome. Many businesses have been helped through difficult times by the BPSS and they will now know that they will not meet a sudden cliff edge; had the service been withdrawn, many businesses could not have coped with bringing their tax payments up to date in one fell swoop.
Not many small businesses incur annual capital expenditure in excess of £50,000 so the doubling of the annual investment allowance will only have a limited impact, but those businesses which are capital intensive will welcome this additional support.
The increase in the Entrepreneur’s Relief threshold is something which RSM Tenon have been supporting for a long time. In the current environment not many people are selling their business, but it must be right that when the economy picks up that entrepreneurs are not faced with a huge tax bill on the sale of a business which they may have spent a lifetime building up.
Stamp Duty: First-time home buyers will pay no stamp duty on properties worth up to £250,000 until 2011. Conversely stamp duty for properties worth more than a million pounds will rise to 5% from next year.
On the surface this looks like a straightforward initiative, however, as with many things in this Budget, complexity is everything. Who is a first time buyer? The fact that the Government has already had to issue two pages of questions and answers on this shows just how difficult it is to turn a simple proposition into legislation which will achieve its intended purpose.
Fuel Tax: This month's planned 3p increase in fuel duty will be staggered - rising by 1p in April, another 1p in October and a final 1p in January 2011.
This rise in fuel tax will act as a giant handbrake for many businesses which rely on transportation from taxi drivers to haulage firms. The phasing of this is better than nothing but it would have been better to scrap it altogether.
Research that RSM Tenon carried out ahead of the Budget showed that over a third of businesses had suffered a significant financial impact from previous increases in fuel taxes whereas 8% passed the increase directly onto their customers.
Income tax: Those earning £150,000 or more will be liable to a new 50% rate of income tax from April 2010.
The introduction of the 50% tax rate seems to be a purely politically motivated measure. If the Government really wanted to raise taxes, it would have increased income tax by 1%. This would generate around £3.4bn a year and have far more of an impact on reducing the deficit.
Rises in Alcohol: Alcohol duty rose (2% above inflation) and that on cider specifically went up by 10%.
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