The Good
Main capital allowance: Cash flow is the number one priority for small businesses in a recession. Therefore, the doubling of main capital allowance to 40% from April 2009 is positive news, particularly for those investing in new plant and machinery.
Loss carry back: An extension of the three-year carry back, meaning loss-making businesses can reclaim taxes on profits made in the last three years. It will help lots of businesses, but it was expected and is simply an extension of an existing measure.
Traineeships: A £260m investment in training for persons under 25 who have been unemployed for over a year. This is good news, as any help with recruitment costs will provide relief for businesses.
Business Payment Support Service: This tax helpline is a great relief to small business. However, now the recession is really being felt, it was essential that it was extended but this may be storing up problems for the future as taxes must be paid at some point.
Top up trade credit insurance: Any help to reduce the risk of debts is good news.
Vehicle scrappage scheme: Consumers will get a £2,000 discount when trading in old vehicles. This is good news for the many thousands of small businesses in the automotive industry. However, it is too short in duration as the scheme only goes up to March 2010 and a more long-term solution is called for.
Business rates: The spread of uplift is a positive move for small businesses.
VAT threshold increased: While the extension of the reduction didn’t happen, the raising of the threshold to £68,000 at least means that many small businesses will fall outside the VAT bracket.
Analysis: there is very little that is new here, some of which the Government had little or no option to implement. Initial feedback from our small business customers is that these measures will have no positive impact on them.
The Bad
VAT reduction will not be extended beyond December 2009: This comes as a big blow to small businesses. Small businesses have yet to see a benefit in the cut, which was difficult to implement in the first place, and 13 months is not long enough for the reduction to have an impact.
Extra 2% on cigarettes and alcohol: This may be good for the public coffers but this is dreadful news for the average shopkeeper. They are now faced with implementing the complex changes extremely quickly – look out for mistakes and miscalculations or even worse, struggling shopkeepers taking the cost of the changes on the chin as they battle to make these unusual tax measures in time. What was wrong with the far simpler addition of a few pennies of tax?
Increase in Tax for high earners: The loss of pension relief and the increase in tax to 50% will provide a real disincentive to Directors of small businesses and possibly even budding entrepreneurs.
Tax avoidance schemes: Chancellor announced another crackdown on tax saving schemes.
Corporation Tax: The increase from 20% to 21% for this year has been maintained although a reduction would have had more impact.
Analysis: yet again, we see more burdens on small businesses, the backbone of the UK economy. The increased pressure on small business cash flow is likely to increase business failures and higher taxes will decrease incentives for businesses to invest in the future. Plus, pity the shopkeeper tonight!
The Missing
All but one of the major initiatives that small businesses were looking for – according to a recent Intuit survey – simply weren’t there:
No reduction of employers’ National Insurance contribution rate.
No tighter government control over bank charges.
No further measures to ensure late payments are reduced.
No extension of VAT reduction to 15 per cent for a further 12 months.
Analysis: UK small businesses have been loud and clear on what they wanted to see from the Budget. The Government has let them down.
Mark Hemingway, spokesman for HSBC Commercial Bank, said:
“It was essential that today’s Budget really focused on helping businesses of all sizes weather the current economic downturn. It was pleasing therefore that there were many positive initiatives announced, some of which really do help businesses improve their cash flow, access credit and trade more effectively. HSBC fully supports these sentiments and has already pledged to make an additional £1 billion available to UK SMEs this year to help them with their working capital requirements.
“The announcement that loss-making companies will be able to reclaim taxes on profits made in the last three years to offset their losses should also prove to be a welcome boost to many businesses. We are committed to working with our business customers to provide the support and right financial solutions to help them weather the storm.
“Doubling the capital allowance rate to 40 per cent should give more businesses the means and impetus to bring forward investment plans, which we see as an important step to enabling firms to move forward and increase their ability to trade internationally.
Diana Flier, compliance analyst at Intuit UK, comments:
“This Budget drastically misses the mark. In fact, it demonstrates some blatant disregard for the challenges that small businesses face, such as how complex it will be for shopkeepers to increase the prices of cigarettes and alcohol by a percentage rather than the usual pennies in a matter of hours. There is nothing concrete in this Budget that will provide real help for Small Business Britain, a sector which is so fundamental to the UK economy.
“There are several short term measures but these simply skim the surface of what really needs to be addressed to get enterprise back on track. The closest we’ve got to anything tangible is the doubling of the main capital allowance, which taps into the critical issues of cash flow. However, even this is simply an extension of an existing initiative and other measures within the Budget will damage cash flow, despite what the Chancellor says. What we and our customers really wanted to see was real commitment from the Government to ramp up support for small business. Sadly this has not transpired and businesses are left having to fend for themselves. In general, this is a bad Budget for small businesses.”
Mark Wordley, of ASUK Accountants based in Staffordshire, and Intuit UK ProAdvisor, comments:
“There is little here in the way of fresh measures to help struggling businesses get through the recession and flourish. Tax relief measures are virtually non-existent, which will not help many small businesses experiencing cash flow problems. For these businesses, they will have to look at longer term solutions and sound financial discipline. The hoped for freeze in VAT was not announced, which will almost certainly guarantee a ‘feel bad’ factor in the retail sector as VAT rises again in 2010. For expanding businesses, the new tax rate of 50% and reduction in pension contributions
for high earners may well prove to be the last nail in the coffin for business owners wishing to succeed in the UK.”
Nigel Venner, owner of Castle of Comfort Country House and Restaurant in Bridgwater, says:
“The 2% increase in alcohol duty will have a significant impact on our business, and our restaurant specifically. Margins will be lower when selling alcohol unless we increase prices but in the current climate when it is difficult enough to get customers through the door, we can’t see how we can do that.
“The VAT returning to 17.5 % after December will also place a huge administrative cost on us. Our systems are still getting used to the original cut, so reversing it all back will be a major headache and detrimental to the business.
“While the investment in traineeships has all the right intentions, we will not be training any new staff in the current climate, with or without a training subsidy, simply because it is difficult to maintain current staff levels. The spread of business rate increases will provide no benefit to us. Business rates are too high a cost on our business as it is without any rise, whether it is phased in or not.
“We didn’t expect the Budget to deliver much for small businesses in the first place but we are still disappointed that more hasn’t been done to help us.”
Do you agree with this? How do you think today’s budget will affect your business?
