The Chancellor’s 2011 Budget was one of the most business-focused in recent memory. The bulk of the announcement focused on new measures that the government believes will help stimulate private sector growth.
Businesses of every size will see some change as a result of the Budget announcement – but the impact is unlikely to be anywhere near as large as the Chancellor would like you to think.
Despite calling it the ‘Budget for growth’, at the start of his announcement the Chancellor was forced to admit that the Office for Budget Responsibility’s (OBR) growth forecasts had, in fact, been downgraded.
The growth forecast for 2011 was cut to 1.7 per cent from 2.1 per cent. The prediction for 2012 was also cut, from 2.6 per cent to 2.5 per cent.
Meanwhile, the Chancellor said that inflation is likely to stay between 4 and 5 per cent during 2011, before falling to 2.5 per cent next year. This prediction was widely criticised as being over-optimistic. Stephen Nickell, a member of the OBR’s steering committee, said last week that their forecasts depend on oil prices remaining steady – and there is absolutely no guarantee that this will be the case.
Business tax was one of the main focuses for the Budget. Perhaps most obviously, the headline rate of Corporation Tax is set to be reduced to 26 per cent from April – a further 1 per cent cut on top of the reduction that had previously been intended. The rate will then be reduced by 1 per cent per year for the next three years.
Small businesses, however, will be concerned about the Small Profits Rate, which applies to firms with profits up to £300,000. This rate will fall to 20 per cent in April, but this had been previously announced anyway. There is no change to the Small Profits Rate as a result of the most recent Budget announcement.
The small business rate relief scheme has been extended for an extra year. The scheme is now scheduled to end on 30 September 2012.
Under the scheme, eligible rate-paying small businesses are entitled to rate relief of up to 100 per cent on properties with a rateable value up to £6,000. Relief is also available, at gradually decreasing percentages, for properties with a rateable value between £6,000 and £12,000.
It is worth noting, though, that one of the major problems with rate relief has been a lack of awareness. There are still thousands of businesses across the country not claiming the reliefs to which they are entitled, simply because they don’t know about them. There was no announcement of any awareness-increasing measures in the Budget.
The government’s tacit pledge to scrap IR35 looks like it has been abandoned, at least for the time being. Instead, HMRC will set up a new telephone helpline to give guidance on IR35, and will publish illustrative cases to demonstrate what it believes the scope of IR35 to be. The lack of tangible movement on IR35 is a major disappointment for many contractors.
There was never any chance that the headline rate of VAT was going to be changed in the Budget. The thresholds for registration and deregistration have, however, increased broadly in line with inflation. The registration threshold will rise to £73,000, while the deregistration threshold will rise to £71,000.
We already knew that there would be some increase in the Income Tax personal allowance in the Budget, as the coalition agreement commits the government to raising the threshold every year until it reaches £10,000.
So, the Chancellor announced that the personal allowance would be increased by £630, from April 2012. This is in addition to the £1,000 increase already scheduled for April this year.
Higher rate taxpayers will draw limited enjoyment from the announcement that the 50p tax rate is to be reviewed. This is likely to be a protracted process – and scrapping the rate will cause the government significant political problems, given its ‘all in this together’ rhetoric.
Fuel duty was the ‘take-home’ announcement for many people. As a result of the Budget duty was cut by 1 pence per litre, effective from 6PM that evening. But the government will struggle to frame this as an actual reduction in the cost of fuel, given that its VAT increase is bumping up prices by about 3 pence in the litre.
The Chancellor proudly proclaimed that businesses would save £350 million as a result of his red tape “bonfire”. We already knew what the Chancellor was going to announce, because Mark Prisk pipped him to it a couple of days before.
As previously reported, firms with fewer than 10 employees will get a three-year moratorium on new domestic regulations. This means they will not have to comply with new regulations for three years, provided that those regulations are made by Parliament and not as a result of an EU directive.
The Time To Train regulations are amongst the highest-profile rules to be scaled back. Employees of businesses that employ fewer than 250 people will no longer have a statutory right to request time off to train. Perhaps more controversially, the government has also scrapped plans to allow employees to bring discrimination claims against their employer on two separate grounds at once. This move has been widely criticised by anti-discrimination groups.
The Chancellor also announced the establishment of 21 so-called Enterprise Zones. New businesses starting in these Zones will get business rate relief of up to 100 per cent. They will also benefit from relaxed planning laws, and access to super-fast broadband.
The locations of the first 10 Zones were announced in the Budget. They will be located in
• Birmingham and Solihull
• Leeds City
• Sheffield City
• Liverpool City
• Greater Manchester (since confirmed as Manchester Airport)
• West of England
• Tees Valley
• North Eastern
• The Black Country
• Derbyshire and Nottinghamshire
The Chancellor also announced that a Zone would be set up in London, but its location would be at the discretion of the Mayor. Boris Johnson has since said that it will be located in Royal Docks.
The Business Property Renovation Allowances will be extended by 5 years. The scheme, which offers tax relief for the renovation of qualifying dormant commercial properties, will now run until April 2017.
As part of the government’s efforts to reduce youth unemployment, the Chancellor announced the creation of 40,000 extra apprenticeships for young unemployed people. There will also be an extra 100,000 work experience schemes over the course of the next two years.
Many businesses have found that apprenticeships are an effective way of building a highly skilled, highly motivated workforce. If you are considering taking on an apprentice you should talk to the National Apprenticeship Service for more information.
Photo courtesyM Holland.