The Budget gives little comfort to small and medium-sized enterprises (SMEs) and owner-managed businesses who were hoping for new measures to reduce their tax bills – but there are ways to help, say experts at Vantis, the AIM listed UK top 13 accounting, tax and business advisory group.
Chancellor Alistair Darling gave his Budget speech today (Wednesday 22 April 2009) amid hopes of a temporary reduction in the tax burden for SMEs.
Terry Baldwin, Head of Corporate Tax at Vantis, says: “This was a timely opportunity to give significantly more help to the country’s small and medium businesses as they do their best to cope with the recession. Hopes of a Budget tax lifeline soon disappeared, and many companies do not have time to wait for previously announced benefits to filter through into next year’s accounts. It may be too late by then.
”However, there are options open to businesses which can help. They can delay paying their tax bill if they negotiate with HM Revenue & Customs. This ability was announced last November – and allowed to continue by the Budget – and means businesses can pay their tax liabilities on a timetable they can afford, without risking penalties, provided they have a credible business case. They will, of course, still be charged interest. Also, there is now a greater ability for smaller businesses to offset their losses and generate tax repayments, as detailed below.”
Terry comments as follows:
Corporation Tax – no reduction, and no further delay in 1% increase
“The economic landscape has changed dramatically since the proposal to increase the small companies’ rate of Corporation Tax from 19% to 22% in the 2007 Budget. Rather than deferring the increase from 21% to 22% until April 2010, as announced in the Pre-Budget Report (PBR) last November, it would have a much greater impact on small and medium companies if the rate reverted to the original 19% for the financial year just ended, because the tax on those profits will be payable in 2009.
“Small and medium businesses create many jobs in the UK, and in some ways it would seem more sensible to raise the extra taxes the Chancellor needs by increasing expenditure-based taxes, such as VAT and excise duties, which are payable on people’s discretionary expenditure, rather than imposing it on the profits of small and medium businesses struggling to survive.
“Businesses which do survive this year should see the cash-flow benefit in 2010 of the delay to the 1% rise.”
Offsetting losses up to £50,000 for three years instead of one – extended for another year but sum not increased
“The proposal to extend the loss carry back from one to three years is welcome, but of limited impact due to the £50,000 limit. Increasing the limit substantially in this Budget – perhaps to £300,000, the small companies’ rate threshold - would have significantly helped businesses which are incurring losses.”
Investment allowance increased to 40%
“The one-year re-introduction of a 40% first year allowance for expenditure on mainstream plant and machinery is helpful for businesses that can afford to invest more than £50,000 in this way.”
15% VAT rate still to change from 31 December this year
“There was a plea from businesses, especially retailers, to move the changeover date away from December, traditionally their busiest period. This appears not to have been heeded, and so there will be an additional pressure – as well as cost – to many businesses who will already be extremely busy generating a good Christmas and January sales period to turn things around.”
Click here to download a copy of Vantis' summary of the Chancellor's Budget 2009 Report.