News

March 24, 2010 - Anonymous

Small businesses at the heart of the Budget, says Chancellor

In the last Budget of the current Parliament, Chancellor Alistair Darling announced a £2.5 billion growth package to help small businesses and promote innovation.

The Chancellor started his speech by saying that the Budget would provide targeted support for businesses until the economy recovers. “At its heart is a £2.5 billion one-off growth package – to help small business, promote innovation, invest in national infrastructure and key skills,” he said.

He said the Government would partly pay for the package by switching spending on existing allocations and through taxes on bankers’ bonuses.

Mr Darling predicted that the UK economy would grow by around 1.25 per cent this year, but downgraded his forecast for 2011 from 3.5 per cent to around 3.25 per cent growth.

He also announced measures to improve cashflow for small businesses by saying that up to 80 per cent of invoices would be paid by government departments within five days. Mr Darling went on to promise that small firms would be given greater access to public sector procurement. In particular, the Chancellor pledged to build on the Glover Review and increase the number of central government contracts that go to small firms by 15 per cent – equivalent to £3 billion.

Further key Budget themes included a pledge to halve public borrowing over four years through:

  • tough decisions on public spending
  • reduced inefficiencies in government departments
  • increased lending by state-owned banks
  • greater investment in national infrastructure.

Business tax

Mr Darling pledged to support start-ups and help small businesses grow through a temporary increase in small business rate relief from October 2010.

“The Federation of Small Businesses says business rates are the third biggest cost after salaries and rents,” he said. “To help fledgling businesses set up, as well as existing ones, I have decided to cut business rates for one year from October.”

He added that this change would mean a tax reduction for more than half a million small businesses in England – 345,000 of which would pay no business rates at all.

The Time to Pay scheme, which gives businesses struggling to pay their tax bill more time to do so, will continue to be offered. Growing firms have been given a boost with a doubling of the Annual Investment Allowance to £100,000. This will enable more capital expenditure to be offset against taxable profits.

Entrepreneur’s relief will also be doubled so that gains under £2 million are subject to Capital Gains Tax at the lower rate of 10 per cent.

New laws will enable HM Revenue & Customs (HMRC) to demand financial security from firms who have a long history of paying PAYE late or not at all. The rules will only affect those determined not to pay (and won’t affect those who need time to pay and who make payment arrangements with HMRC).

The Government will be taking action to stop firms who try to avoid paying tax and National Insurance contributions through the use of Employee Benefit Trusts to disguise payments of bonuses.

Enterprise and access to finance

The Chancellor announced that the state-owned Lloyds Bank and Royal Bank of Scotland (RBS) will lend £41 billion to small businesses between April 2010 and April 2011. “We want to ensure viable small firms continue to get the credit they need,” he said.

He went on to say that firms feel powerless to challenge banks’ decisions not to lend to them, so a new “SME credit adjudicator” with enforcement powers would ensure small businesses are fairly treated when applying for loans.

Mr Darling also said the Government was streamlining available funding options because small businesses could find them “daunting”. A new UK Finance for Growth body will streamline £4 billion of existing finance products for SMEs, meaning a single portfolio of government-backed funds will support businesses nationwide.

Transport

To help reduce carbon emissions, the Chancellor announced plans to halve the rate of company car tax for ultra-low carbon cars. He also said the fuel duty increase for 2010 will be staged, with an increase of one penny per litre on 1 April 2010, a further penny on 1 October 2010, then 0.76 pence per litre on 1 January 2011. Fuel duty will also rise by one penny per litre in real terms on 1 April each year from 2011 to 2014.

Personal tax changes

As previously announced, from April 2010, a new 50 per cent rate of tax will apply to incomes above £150,000. From April 2011, tax relief on pension contributions will be restricted for those incomes of £150,000 and over.

Also as previously announced, employee, employer and self-employed rates of National Insurance contributions will increase by 1 per cent from April 2011. People earning less than £20,000 will not pay any extra National Insurance contributions.

Plans to scrap the default retirement age were not detailed, with the Chancellor saying that the reforms to employers’ rights to make people retire at 65 were simply “under consultation”.

Other notable tax reforms included a simplified system for working parents who claim the childcare element of the Working Tax Credit for short periods of time, such as during school holidays. People over 60 working at least 16 hours per week will be eligible for Working Tax Credit.

The Chancellor announced that a new savings fund for those on low incomes, the Saving Gateway, will be launched July 2010. The Government will add 50 pence for each £1 saved by working-age people on low incomes.

Finally, the Budget Notes detailed plans to increase the headline rate of National Minimum Wage by 2.2 per cent to £5.93 in October 2010.

  • To access the Budget Report in full, visit the HM Treasury website