ith the economy flat lining and money scarce it was always unlikely that the 2013 Budget would be a giveaway.
George Osborne desperately needed to balance the need to kick starting the economy with the need to reduce the fiscal deficit. However, despite the limited room for manoeuvre he has been able to introduce various tax breaks and concessions to encourage small businesses and hopefully boost the economy.
He also managed to produce one unexpected rabbit from the hat.
The main headline was, of course, the reduction in the large companies corporation tax rate to 20 per cent in April 2015, effectively merging the large and small companies corporation tax rates.
This particular tax reduction had been widely trailed in the build up to the Budget. However, it nevertheless represents a welcome simplification to the tax rules as well as providing an incentive to set up business in the UK. It will also help UK PLC to become competitive.
The UK already has one of the most competitive corporation tax rates in any major economy, significantly beneath the levels in France, Germany and the USA, and this latest reduction will further emphasise that competitive advantage.
The introduction of the Employer’s Allowance was undoubtedly the most eye catching and unexpected of all of the tax incentives announced for small businesses.
Under the Employer’s Allowance each employer will obtain a credit of up to £2,000 against their employers national insurance bill. Employers’ NIC has always effectively been a tax on jobs and a significant disincentive to employing staff.
Hopefully one day employer’s NIC will be abolished completely. Until that day though we should welcome this boost for businesses of all sizes.
Another tax reduction that was widely trailed before the budget was the increase in the Personal Allowance to £10,000 from April 2014. Employees and the self-employed will therefore pay no income tax on the first £10,000 of earnings though they will still pay some employees national insurance contributions.
Someone earning £10,000 in 2014-15 will pay £250 National Insurance, compared with £670 tax and NI this year.
On the administration side, from 6 April 2013 onwards small unincorporated businesses will be able to calculate their taxable profits on a cash basis, without distinguishing between capital and revenue expenditure.
This should simplify accounts production and reduce the time and financial cost of compliance, and allow more small businesses to complete their accounts in house.
The main disappointment in the Budget was the Government’s decision not to delay the impending increase in business rates due in April. Various business organisations had made representations to the Chancellor in the hope of the rates being frozen but to no avail.
However, overall the Chancellor has made a decent attempt to boost the economy in very difficult circumstances.
And for the beer drinkers amongst us, let’s raise a glass to the news that there was no increase in the duty on beer.
Geraint Jones is a partner in accountancy firm Reeves