June 22, 2010 at 9:41 PM

After weeks of speculation, the Emergency Budget has finally been  announced. As the dust begins to settle, we’ve sifted through the detail and have put together Wow’s take on the Budget.... and what it means  for small businesses.

What do you think about George Osborne’s first budget? Check out Wow’s twitter page and let us know what you think here: @thewowcompany

Summary for small businesses

It was an encouraging Budget for small businesses, with Corporation  Tax being reduced to 20% and Capital Gains Tax increases not as high as  expected. The extension of Entrepreneurs Relief is also welcomed, as are  the breaks in National Insurance payments. All details are below.

However, we cannot escape the fact that higher income earners will  pay increasingly more tax over the coming years, so should plan their  affairs carefully to ensure they are as tax-efficient as possible.

VAT

As predicted by Wow, this will rise from 17.5% to 20% with effect from 4th January 2011.

Corporation Tax

Small companies (those whose Net Profit is less than £300k) will  benefit from a reduction in Corporation Tax to 20% from April 2011. The  Standard Rate of Corporation Tax will reduce from its current level of  28% by 1% per year over the next 4 years, resulting in a rate of 24%  from 2014.

Capital Gains Tax (CGT)

Basic rate taxpayers will be unaffected, with the rate remaining at  18%. However higher rate taxpayers will pay 28% on capital gains from  midnight tonight. The annual allowance of £10,100 per person remains.  Taper relief and indexation has not been re-introduced. Although  increases are not as high as first feared, proper planning is still  advisable.

Entrepreneurs Relief

Small business owners will benefit from an extension to Entrepreneurs Relief from £2m to £5m.  The Capital Gains Tax on these qualifying  assets will therefore only be 10% on the first £5m of gains. Good news!

Income Tax

As predicted, the personal allowance will increase to £7,475 from  April 2011 meaning up to 880,000 people will be removed from paying  income tax.  The thresholds for higher rates of tax will remain the same until 2013/14.   This means personal tax planning for many small  business owners & entrepreneurs will become increasingly important.

National Insurance for Employers

There is some real benefit to small businesses here with the  threshold at which employers pay National Insurance increased from £110  per week to £131 per week from April 2011.  The Chancellor is hoping  that this will help boost employment.

In addition, in a measure to encourage start-ups outside of London  & the South East, the Government is introducing a £5,000 National  Insurance break for businesses based outside this region that employ up  to 10 staff.

Annual Investment Allowance

Slightly less good news for some businesses is that the Annual  Investment Allowance is being reduced from £100,000 to £25,000, with  effect from April 2012.  This means that only £25,000 of qualifying  annual investment will be relievable against Corporation Tax.  This may  encourage businesses to bring forward certain elements of capital  expenditure.

Pensions

As Wow predicted, there was good news for people who have accumulated pension funds, as the Government announced they will scrap the  compulsory purchase of annuities from age 75.  This means individuals  will have even more flexibility in terms of how they use their pension  funds from April 2011 – making them very attractive tax planning tools  for business owners.

The Economy

The main headline here is that growth is forecast to be 1.2% in 2010, 2.3% next year and 2.8% in 2012.  Consumer Price Inflation (CPI) is  expected to reach 2.7% by the end of 2010, before returning to the  target of 2% in the medium term. These figures were independently  produced by the newly-formed Office for Budget Responsibility (OBR).

Unemployment is expected to peak at 8.1% in 2010, before falling back to 6.1% by 2015.

The Budget has obviously outlined some huge spending cuts across  various departments. However, many businesses will be pleased to know  that there will be no further reductions in capital expenditure.

Other headlines

2 year pay freeze for Public Sector workers earning over £21,000 per annum.

State Pension age increase to 66 will be accelerated. Increases in  the Basic State Pension will be in line with earnings and not the Retail Price Index.

A levy will be imposed on UK banks and UK operations of foreign banks which generate more than £2bn in annual revenue.

Good news for cider drinkers – Labour’s planned increase in duty has been scrapped!

No rise in alcohol, tobacco or fuel duties.


What do you think about George Osborne’s first budget? Check out Wow’s twitter page and let us know what you think here: @thewowcompany