“Tough but fair” and “unavoidable” are the Chancellor’s labels on this particular bottle of medicine. Ominous words maybe, but what are the active ingredients that will affect small businesses? We have been trying to evaluate the impact of the measures and have come to the conclusion that, as a small business, we will be relatively unscathed if not actually helped.
Tax & VAT – main points
- VAT -The standard rate of VAT will increase by 2.5% from 17.5% to 20% from 4 January 2011. The zero rate for food and books remains in place while the lower rate for other items, such as fuel and power, remains at 5%. As long as the flat rate scheme for small businesses is still available, we can simpleweb.co.ukallow that pill. The flat rate VAT scheme allows small businesses to apply a single percentage to turnover in a VAT period, therefore saving work recording VAT on sales and purchases.
- Corporation tax – The rate for small companies will reduce from 21% to 20% next year.
- Capital expenditure – The Chancellor has put the threshold for the Annual Investment Allowance for qualifying capital expenditure on plant and machinery back down to £25,000 – but not until April 2012. Until then the threshold will remain at £100,000.
There are also plans to increase the personal income tax allowance from April 2011, scrap the proposed 50p levy on landlines and review the IR35 and small business tax that relates to contractors and intermediaries.
Other measures
Small business rates relief scheme
Plans to increase the level of small business rates relief from October 2010. Rate relief will apply to premises valued at up to £6,000 and then tapering to £12,000. Take a look at the Business Link website to estimate your business rates. You can find the rateable value of a property on the Valuation Office Agency website.
Government backed funding schemes
There will be an increase in the funds available under the Enterprise Finance Guarantee Scheme. This scheme is aimed at encouraging banks to lend to small businesses that are poised to grow but lack the funding to do so. However, the health warning here is that, although the lending is backed by government funds, the banks will still apply their own commercial lending criteria and will not lend if they do not think the loan will be repaid. You can check your eligibility for government backed funding by using the interactive tool on the Business Link website.
The creation of an Enterprise Capital Fund to facilitate equity finance for small businesses. The government will fund 25% and private investors (Angels) the rest.