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Small business taxation summary

24th Mar 2010
Principal Harris & Company
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Small business owners were breathing a sigh of relief this afternoon.

The Budget brought a little cheer for SMEs with a doubling of the Annual Investment Allowance (AIA) next year and a big increase in Entrepreneur's Relief, but it was mainly the lack of bad news that was welcomed:

  • VAT rates are untouched - as are Income Tax and CGT rates
  • No change in CT rates - there was a rumour that the main rate might be cut to 25%, but the Chancellor nailed his colours to the mast by announcing that it will continue at 28% for 2011/12. The small profits rate is still due to increase from 21% to 22% from 1 April 2011
  • No change to the Business Payment Support Service; during his speech, the Chancellor said the time to pay scheme helped businesses spread £5bn worth of tax payments. "The extra time has also helped businesses pay more of the tax owed." said Darling who said the scheme would be extended for the whole of the next Parliament. Keep an eye out for stricter enforcement and stiffer questioning at the outset.
  • In one of several green tax incentives, zero-emmission goods vehicles will now attract a 100% first year capital allowance (BN42).

The cut in small business rates will also be good news later this year.

Since small business owners are typically lower earners, the cut in SDLT for first time buyers will help many of them, perhaps relieving their businesses of the need to draw extra funds to cover the stamp duty on the first house. However, this cut is widely expected to be offset by a hike in house prices, especially those hovering just under the previous £125K threshold.

Many of us were expecting to hear the date from which all VAT-registered businesses will be expected to file their returns online - currently this only affects those turning over more than £100,000 - but there was silence on this point today. This seems inevitable, but at least it's not a current priority.

There was definitely a sense of "it could have been worse" when Alistair Darling sat down - NICs and small company CT are still going up by 1% next year, but at the moment there's nothing worse on the horizon. That's no doubt going to be in the second 2010 Budget.

Under this government, the theme of anti-avoidance is never far away and BN14 announced a clampdown on loans to members of "close companies" (five particpants or less) that are subsequently written off. The Finance Bill will include clauses denying Corporation Tax deduction for the amount of any write-off, effective from 24 March 2010. BN41 is also promising "significant restructuring" of the legislation covering transactions in securities. A wider range of companies will be covered and a new income tax advantage test and new exemption covering fundamental changes in ownership of close companies will be introduced.

The overriding message for SMEs seems to be "steady as she goes": nothing here to rock the boat - although I think we all foresee some stormy waters ahead, especially if we get a change of Government in May.  In the meantime the increase in the AIA limit means that fairly modest capital expenditure will obtain full tax relief for the time being, a measure which in itself will be an economic and morale boost to SMEs who are starting to come out of the recession.


Replies (13)

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By danrostron
24th Mar 2010 17:54

Can't understand article

 I can't understand this article because it's author repeatedly uses acronyms without ever showing the full words. This is no good for someone who is just starting out in business!

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By Coates Franklin Ltd
24th Mar 2010 18:00

Reply to Dan

SME - small or medium sized enterprise

CT - corporation tax

VAT - value added tax

AIA - annual investment allowance

CGT - capital gains tax

SDLT - stamp duty land tax

NICs - National Insurance Contributions

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By miketombs
24th Mar 2010 18:23

Further reply to Dan

Wed - Wednesday

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By raybackler
24th Mar 2010 19:14

Another bit of help for Dan

K = kilo (not the weight but for one thousand as in kilogram = 1000 grams), so £125K = £125,000!

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By mileswaterman
24th Mar 2010 20:26

So what did Darling do for small Business?

 He has given a pledge to reduce the multiplier for business rates yet the rateable value is going up so where is the saving?


AIA increased to £100k, what is the benefit for the small businesses? how many small businesses will be spending more than £100,000 in a year on plant and machinery.

The Government has instructed RBS and LLOYDS to provide lending to SME's, but there is no guarantee and even if they do what is the criteria, very vague.

no increase in VAT and no introduction of VAT on food. so the benefit was?

Entrepreneurs relief doubled to £2m how many small businesses sell for that amount?

Petrol duty on the up.

no increase in Personal taxes but no increase in allowances. benefit?

and much much more.

A lost opportunity... definitely

But then at least we know just before an election that this is the best they could do...

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By pippa
24th Mar 2010 21:34

replies to Dan

Thanks chaps,

Needed a giggle!

Thanks Dan - you are right about the acronyms, too many of them around in our business.

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By mikewhit
24th Mar 2010 23:53

Once again ...

"VAT" is (possibly) the only acronym in the above list, the rest are abbreviations

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By scohen
25th Mar 2010 09:56

VAT is, of course, Very Awkward Tax :)

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By Coates Franklin Ltd
25th Mar 2010 10:15


Of course, 2011, 2012 etc. should really be 2011 anno Domini.

Oh, and etc. = etcetera.

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Nigel Harris
By Nigel Harris
25th Mar 2010 11:25

Sorry Dan

I regard myself as well and truly chastised! You're right of course, not everyone lives in the arcane world of tax abbreviations. I think I was suffering from Budget overload when I wrote this piece.

Thanks to the AccountingWEB community for coming to my rescue - your comment answered by a reader within minutes of posting your query. That's the power of community for you!

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By Gina Dyer
26th Mar 2010 15:53

Interesting responses from small business owners

More than nine out of ten smaller businesses were left disappointed by this week’s Budget, a snap poll has revealed.

In a survey of its members, the Forum of Private Business found that just 5% believe Alistair Darling’s proposals will create an environment for their businesses to develop.

Similarly, 87% said the Chancellor’s measures will not increase business and consumer confidence.

More than two thirds (70%) of respondents said they expect a more realistic budget to be delivered after the general election. And when asked how they rated the budget overall, only 10% of Forum members described it as ‘good’ or ‘very good’, with 52% branding it ‘average’ and 38% describing it as ‘poor’ or ‘very poor’.

Reflecting widespread anger at the planned hike in National Insurance rates, the Forum’s survey also found that a third (45%) of respondents believed the Budget had a negative impact on employment.

However, some aspects of Mr Darling’s announcement did prove popular.

Just under 9% of those surveyed said they believed the Budget was designed to encourage short-term recovery. And around 19% said the Chancellor’s measures would have a positive impact on both cashflow support and business investment.

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By Anonymous
27th Mar 2010 09:51

Shows the nature of small business owners doesn't it?

Those results don't surprise me. Not because I agree with them but because it is depressingly typical of the business community and their representative bodies. You will NEVER find a positive survey and that's the point of them- they are used by the rep bodies to get into the media, create a mood of how tough it is for business, and how the Government never listens. It won't be any different next year or the year after or the year after... just as it hasn't been any different the year before or the year before that. It's noticeable how the reaction on AWEB from Simon and others has been more upbeat.

Worth thinking about small business owners could have got instead in the Budget. That is, nothing at all or seen taxes rise then in all honesty then I think they should have a little perspective wouldn't go amiss would it? The Government recognised the importance of small business and allocated them £2.5bn of spending or tax breaks. Not that bad is it?

And the nonsense about wanting to see deficit plans is nonsense. To be fair to the Government it has said it will reduce the deficit and those cuts will be set out in the Comprehensive Spending Review for April 2011 onwards in the autumn. And how can people say it has been cynically delayed until after the election? The CSR for April 2008 onwards was delivered alongside the PBR in the autumn of 2007! So the same time scale. So ultimately the equation is

Small business get prioritised in the Budget (and Government tackles business rates, which FSB said is small businesses biggest tax obstacle) ... so business complainWhen small businesses don't get prioritised.... businesses complainGovernment doesn't set out detailed plans ahead of when it normally does... so business complainWhen Government does set out detailed plans... business will complain 

That's fine but it creates a huge credibility gap for business organisations. Sometime its like getting a jumper from your mum at Christmas- maybe it isn't everything you want (or the ferrari you have been hoping for) but you appreciate getting something and say thank you because she could have forgotton you altogether.

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By Anonymous
28th Mar 2010 00:33

Clarifications on acronyms

An acronym is a word formed from the initial letters of a name, so it seems VAT etc are all acronyms rather than abbreviations.

The prefix for 1000 is "k" (lower case) in the SI system (Système international d'unités, the modern international standard version of the metric system). The upper case "K" is used in computer parlance for 1024, so that 1 Kbyte is 1024 bytes.

etc is an abbreviation for "et cetera" (note the space).

After such erudite pedantry, modesty makes me prefer to remain anonymous.

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