The Fizz! Blog

The first 2010 Budget

Here's a whistlestop tour of the bits of the budget that we think are of most significance to small and medium sized businesses and their owners.  We'll keep it short - but if there's anything you've heard about that may affect you that we've not mentioned here, drop us a line.

Caveat

We'll almost certainly be having another budget within a few months.  An incoming Conservative goverment is committed to a budget within 50 days of the election.  A further Labour government would almost certainly make some changes too.  So bear in mind that all this may change before long.

Income Tax, Corporation tax, National Insurance

All of these are as previously announced.  So, if you've planned your salary or dividends for the next year based upon the anticipated thresholds and rates, it's full steam ahead with that schedule.

Entrepreneur's Relief

This is a relief that potentially reduces your Capital Gains Tax bill on the sale of a business, effectively reducing the rate of tax you pay from 18% to 10%.  Until now, that's been available on the first £1million of such gains that you make in your life, representing a potential tax saving of £80,000 (because you'd pay £100,000 of tax on the gain, not £180,000).  Now, it's going to be available on the first £2million of gains, so could be worth £160,000.

Annual Investment Allowances

For the last couple of years, you've been able to deduct the first £50,000 of new kit you've bought (plant and machinery, computers, vans etc - not cars) from your business profits before working out your corporation tax or income tax bill.  That's been increased to £100,000.  This was announced as being of benefit to small businesses, but of course the vast majority of small businesses are spending nothing like £50,000 a year on new equipment in any case.  The old threshold covered the full capital expenditure of 97% of businesses - the new threshold covers 99%.

VAT

The annual turnover threshold at which a business is obliged to register has gone up to £70,000.  The VAT rate stayed the same, hurray!

Something that hasn't been widely mentioned in budget coverage is a proposal to introduce late filing penalties for VAT returns at some point in the next year.  The proposal is a fine of £100 for the first return that's late during a year, escalating by £100 for each subsequent late return.

Business Rates

The Small Business Rate Relief scheme is being extended so that, for a year from October, many small businesses will pay lower business rates - or none, in some cases.

Stamp Duty

As has been very widely publicised, the stamp duty threshold on houses has been increased to £250,000 for the next couple of years.  Note that it's for first-time buyers only, which is fair enough.

Overall, there was very little to affect the behaviour or outlook of business owners - but this close to an election, that's only to be expected.  The second budget of the year may be more interesting.

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If I were Chancellor

I have to concede that I'm unlikely to hold the position in the near future, but if I were Chancellor, I'd be increasing Capital Gains Tax (CGT) in today's budget.  Taxable capital gains always used to just be added on to your income and taxed accordingly - so if you were a higher rate taxpayer, they'd be taxed at 40%.  Then, a couple of years ago, in a confused fudge typical of many tax changes over the last few years, CGT was reduced to a flat 18% for everyone.  Given that, generally speaking, capital gains are the preserve of the relatively well-off, this largely represented a significant reduction in tax for the wealthier members of society.  Why should income tax go up for the better off as they earned more, but not capital gains tax?  What was the logical reason for the change?

It made no real sense then, and it doesn't make any more sense now that the coffers are empty and tax needs to be raised somewhere.  So the obvious thing to a non-politician would be to put CGT back the way it was, so that next year people will pay it at 0%, 20%, 40%, 60% or 50% depending in their income.  Whether the Chancellor will risk the headlines that might follow from effectively doubling a tax for some people remains to be seen, though.  We'll find out this afternoon.

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Budget announced for 24th March - but can you rely on it?

Gordon Brown announced yesterday that the budget will be on 24th March.  Generally a month's notice is given, but political maneouvering meant that the government had delayed confirming the date.

So, once the next year's budget has been delivered, we can all commit to our tax planning for the next year, right?  Well, no, it's probably not as easy as that.  Because we're quite likely to have two budgets this year.  If, as looks perfectly feasible at the moment, we have a change of government in a couple of months, the incoming government is almost certainly going to immediately set a new budget of their own.

So be careful - you might want to put off any major tax-sensitive decisions that rely upon the first budget until the summer, when the position should be clearer.

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