Summary of the main changes of the Budget 2013 for Small Businesses

budget response 2013Mr Osborne has said, “It could be worse”.  However could it have been better? And that’s surely the question. It would be interesting to hear your opinions. My feeling is that no government has the balls to make the difficult decisions required for the economy as it may lose votes. It’s all short term-ism.  

Our View:

No real surprises as most had already previously been announced. There were some positives for business with the reduction in corporation tax and the £2,000 employment allowance, which I expand upon below.

A surprise was the radical “Help to Buy Scheme” which constructors will be applauding. The government will provide equity loans from 1st April 2013 worth up to 20% of the value of a new build home up to £600,000 repayable once the home is sold. There will also be a mortgage guarantee scheme starting in January 2014 to underwrite mortgages with smaller deposits of 5-20%, which should give access to lower mortgage rates.

The government is pinning its hopes on a property value recovery, meddling in the housing market and house prices which has disaster written all over it.  Do we really need another house price bubble waiting to burst! It may give a boost to the construction sector but would it not have been more prudent to increase social housing which would in turn provide support to the construction industry, creating new jobs and affordable housing without an increase in personal debt.

What is desperately needed, is an increase in access to grants, loans and investment for small businesses as well as a reduction in business rates, although it has to be said that the income tax threshold (albeit delayed until 2015) to £10,000 will surely help many low income families and pensioners.

Well, that’s me off my soapbox for now and a summary of the key points is below:

Corporation Tax Rates

A single rate of corporation tax of 20% will be implemented from April 2015 making the UK rate one of the lowest in the G20 group of countries as well as a simplifed Corporation Tax system. Hopefully this will attract more investment to the UK and generate jobs.

The small companies’ (corporation tax) rate is already at 20% and the main rate will be 23% for the year 2013/2014, 21% 2014/2015 and then 20% for the year 2015/2016.

Simon Walker, Director of the IOD said “Businesses will be glad that George Osborne has also continued the downward pressure on corporation tax. Britain must become the most competitive place to do business, and lower taxes will attract welcome investment from abroad.”

National Insurance Contributions

A £2,000 employment allowance from April 2014 to be offset against employers national insurance contributions is welcome and will be a great help to the smaller business. 450,000 of the country’s smallest businesses will therefore no longer pay any employer’s NIC’s.

The IOD has said “The new allowance to reduce the tax on employing people is a welcome boost for businesses who are working hard to grow”

NI Rates for 2013/14

  • Employer’s class 1 above £148/week not contracted out – 13.8%
  • Self-employed class 4 from £7,755 to £41,450 per annum – 9%
  • Self-employed class 4 additional rate above £41,450 per annum – 2%
  • Self-employed class 2 – £2.70 per week
  • Voluntary contributions class 3 – £13.55 per week

Personal Taxation and Allowances

The personal allowance rates increased to £10,000 for the tax year 2014/2015 and the higher rate increased to £41,865 with a reduction in the basic rate limit.

Full details can be found at: www.hmrc.gov.uk/budget2013/tiin-2531.pdf and an increase can only be welcomed for all.

  2012/2013 2013/2014 2014/2015
Personal Allowance £8,105 £9,440 £10,000
Basic Rate Limit £34,370 £32,010 £31,865
Higher Rate Threshold £42,475 £41,450 £41,865

Dividends

Dividend tax on additional tax rate payers earning over £150,000 reduced from 42.5% to 37.5% for 2013/2014.

Beneficial loans to employees

The exempt threshold for small loans to employees will rise from £5,000 to £10,000 from 6 April 2014. This effectively means season ticket loans and is good news for commuters particularly with the increase in cost of rail travel.

Capital Allowances

Removal of writing down allowance for leased business cars from April 2013 confirmed.

As of April 2015, the 100% writing down allowance for cars bought outright will change to vehicles with carbon emissions of 75g/km or less from April 2015 (Currently 95g/km) and will remain in place until 2018.

  • Main pool: writing down allowance: 18%
  • Special rate pool: writing down allowance: 8%
  • Annual Investment Allowance (AIA) cap: £250,000

The AIA cap is due to revert to £25,000 on 1 January 2015.

Capital Gains Tax

  • Annual exemption increased to £10,900 from £10,600
  • Capital gains tax relief on the sale of companies to their employees from April 2014
  • Abolition of stamp duty on shares traded on growth share markets such as AIM
  • Limited one year extension of capital gains tax reinvestment relief for Seed Enterprise Investment Schemes. Find out more at: www.hmrc.gov.uk/budget2013/tiin-1692.pdf
  • Employee shareholder status (a new form of equity linked employment contract) confirmed in the budget. From 1 September 2013 the first £2,000 of share value received is free from income tax and NIC’s and will exempt gains of between £2,000 and £50,000 on shares acquired by employee shareholders. This is most likely to be of interest to small companies with a high growth potential as it’s unlikely that employees will give up some of their employment rights in return for shares.

VAT thresholds

The VAT registration threshold will rise from £77,000 to £79,000 and the deregistration threshold will increase from £75,000 to £77,000, both from 1 April 2013.

 

Disclaimer: Business Directory UK does not except any liability of any actions taken on the strength of our point of view or of this blog. Please ensure that you confer with your tax advisor and accountant and we recommend that you speak with your accountant to ensure that you plan effectively for any possible savings or required changes to your administration systems and accounting fees.

avatar Name: Alexandra Eager
About: Alex has worked as a Financial Controller and Finance Director for many years for a variety of companies across a range of industries but more recently she has moved away from accounting working for an internet marketing agency as Finance and Operations director, primarily overseeing the finance functions and search engine optimisation (SEO) for clients. Follow Alex on G+ and on Twitter @Alex_BusDirUK
Alex runs her own company with two fellow owners developing a suite of e-commerce web sites and promoting them directly. “I found that SEO and finance were quite compatible both needing an eye for detail, research and analysis as well keeping up with new developments and changes.”

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