After every Budget, we circulate a (hopefully fairly concise) summary of the key SME points to our clients and contacts (if you fall into either category and you're not on the mailing list, let us know!). This is what we sent this month:
As usual, here's a whistlestop tour of the bits of this week's budget that we think are of most significance to small and medium sized businesses and their owners. As ever, most changes had been announced well in advance, so there's no real news on tax thresholds or Income Tax and National Insurance rates, and our advice to those of you trying to extract funds from a limited company as tax-efficiently as possible remains unchanged.
As ever, we're not going to list every single thing that was announced; you may well have had several emails doing that already. If there's anything you've heard about that may affect you that we've not mentioned here, do give Jane or me a call.
Mileage Rates
Since the dawn of time (well, 2002), employers have been able to pay their employees and directors 40p a mile for the first 10,000 miles driven in their own car for business purposes in a tax year, and 25p a mile thereafter, tax-free. They can pay more if they want, but the excess will just be taxable income for the employee. Those rates can also be used by sole traders and partnerships with relatively low turnovers to work out the deduction they claim on their tax returns for motoring costs. After 9 years of continually increasing motoring costs, the 40p is going up to 45p from 6 April. Every little helps, I guess!
As an aside - and this has nothing to do with the budget, it's just something that's come up a few times recently - that rate doesn't dictate what a business can charge its customers for mileage. If you recharge mileage to your clients, there's no reason you can't charge them more than 45p if that's what your contract with them says, or if they're happy with a greater rate that better reflects the actual cost of motoring. 45p is the limit on what a director/employee can be paid tax-free by their employer, it's got nothing to do with how much their employer can charge on to the end client. That's a separate matter. Equally, if your company does charge its customers more than 45p a mile, you can still only reclaim a maximum of 45p a mile from your company tax-free.
Corporation Tax
Ignore the headlines about an extra cut in corporation tax; that's for big companies. There's no extra cut for small companies. Their rate was due to decrease from 21% to 20% on 1 April, and that remains the case.
VAT Registration Threshold
If you're keeping an eye on this, it's gone up from £70,000 to £73,000.
Research & Development Tax Credits
R&D tax credits are very unusual, in that they enable companies to get tax relief for amounts that they haven't even spent. Their rate is going up, so that for every £1 you spend on qualifying R&D, you can knock £2 off your profits before working out your tax bill. And the rate is then going to go up again, so that you'll be able to knock £2.25 off your taxable profits for every £1 you spend.
The definition of R&D is fairly tightly drawn, and just doing something that's new to you isn't enough - you need to "achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty". But for those companies that can argue that's what they've done, this is potentially a tax incentive of great value.
Small Business Rates Relief
Some small business occupying premises are presently benefiting from a holiday from paying business rates. That holiday was due to last until October this year, but it's now been extended until October 2011.
Enterprise Investment Scheme
This is a scheme that enables you to get tax relief when investing money in a small business. In most cases, though, you only qualify when you're investing in someone else's business, so it's not a tool that you can use to generate tax savings on funding your own business. However, it is a scheme that is often of benefit to business angels and the like when investing in startups. In any case, the amount that you can invest and the tax relief for doing so are both going up. The main thing is to just be generally aware that the EIS exists if you're looking at potential investment opportunities.
Enterprise Zones
These are zones where a) significant reductions in business rates will be available to businesses moving in or starting up, and b) planning restrictions for those business will be relaxed. Reasonably, nowhere round here has been blessed with such status. The zones are Birmingham and Solihull; Leeds City Region; Sheffield City Region; Liverpool City Region; Greater Manchester; West of England; Tees Valley; North Eastern; the Black Country; Derby, Derbyshire, Nottingham and Nottinghamshire; and somewhere in London.
Alcohol
Finally, ignore what the Chancellor said about "no additional taxes" on beer. That's technically accurate, but misleading. He should have said "no additional taxes apart from the 7.2% increase already planned". But in the immediate aftermath of his speech the BBC reported "No increase in tax on beer", so his sophistry worked.
We hope this has been useful - it is by no means an exhaustive summary, but we think it covers most of the key points for SMEs.