The Emergency Budget - Tax advice and support
The Emergency Budget - Tax advice and support
Martin Hesketh, managing director of Brookson, one of the leading providers of accountancy, tax advice and support services to self-employed professionals, gives his initial reactions following the Emergency Budget announcement.
The challenge facing George Osbourne in the coalitions first Budget announcement has been, to say the least, extensive. It was no surprise, with over 100 billion to re-coup, unemployment levels still on the increase and the post-recession economy more fragile than ever, the Chancellor positioned the Budget, in his opening statement, as an unavoidable one.
Highlights for self-employed professionals
The main theme for the self-employed professional market, following the Budget announcement, can be viewed as one of cautious encouragement. It was pleasing to see the Chancellor acknowledging that the Government is committed to supporting UK enterprise, specifically small businesses and self employed professionals, which was shown through his decision to reduce Corporation Tax (CT) and his commitment to review IR35.
That said, the announcement of expected but significantly extensive public sector cuts could provide some self-employed professionals with real challenges in terms of current contracts and ongoing work. Public sector cuts were focussed upon throughout the lead up to the announcement and clearly not without justification. The Government has announced that it plans to ultimately reduce public sector spend by 25%. With healthcare and overseas aid ring-fenced and an acknowledgement that the armed forces and education may not be hit by the full force of these cuts, it will be interesting to see where the 25% cuts will be made up from.
Self-employed professionals will no doubt see the decision to reduce the lower rate of CT, often referred to as Business Tax, by 1% next year, compared with the previous Governments proposed 1% increase, as one of the more positive elements to come out of the Emergency Budget. This seems to genuinely demonstrate the Governments commitment to support small businesses in particular.
IR35Notably, although the Chancellor did not refer to IR35 within his Budget announcement, the Budget report has outlined, as we predicted, that the Government remains committed to a review of IR35 and Business tax. The review of IR35 will no doubt form part of the Governments overall review of CT. Via a five year review process the Government has committed to provide greater certainty for businesses by committing to principles for CT reforms. In particular it intends to develop its view that, in general, a broad tax base, a low rate and a more territorial approach will improve competitiveness. The more detailed programme for reform will be outlined in the autumn. However, the Government has outlined that it will seek greater consultation on the needs of business. This may provide opportunities for professional bodies such as the CBI, FCSA, APSCo, FSB, REC and PCG to contribute to ongoing discussions, in particular, to ensure the flexible workforce and their needs is fully understood and properly represented in any consultations.
Regional and Sector It is encouraging to see that the Government appears to be focussing on providing growth opportunities and continued investment into regional development within the UK, particularly outside of London. For example, the Chancellor announced a regional employer National Insurance Contribution (NIC) holiday for new businesses, which entitles all new companies set-up outside of London and the South East, to qualify for a maximum NIC saving of 5,000 per employee. The full details around this NIC holiday have not yet been published but again this shows the Governments commitment to helping new business growth.
Those self-employed professionals working specifically within infrastructure may also be pleased to note the commitment from the Government to proceed with capital projects such as the upgrade of the Tyne and Weir Metro and Manchester Metro Link as well as work around Birmingham New Street stations and the rail line between Liverpool and Leeds. It is highly likely that a number of opportunities will fall out of this investment in regional infrastructure and self-employed professionals should ensure they are on top of any potential opportunities to get involved as soon as more details are announced.
Other Tax Changes
VATThere is no doubt that the biggest announcement from the Emergency Budget has been the VAT increase from the current 17.5% rate to 20%, due to take effect from 4th January 2011. Interestingly, more than a third of the money the Exchequer is aiming to recover in the current financial year (8.1 billion) will be accounted for by this tax increase. For those self-employed professionals operating in the flat rate VAT scheme, there will be a proportionate increase to the rate of VAT applicable to their business.
Capital Gains Tax
It is worth noting that the standard rate for Capital Gains Tax for high earners is increasing from 18% to 28% from 23 June 2010. The rate of CGT for basic rate tax payers will remain at 18% and the reduced rate of CGT in place for entrepreneurs will remain at 10%.
Capital Expenditure The Government has announced restrictions on tax relief for capital expenditure, however, these restrictions wont take effect until April 2012. This again shows that the Government is trying to alleviate, where possible, the excess pressure on businesses, in the short term, to allow an opportunity for growth following the impact of the recession.
In terms of changes around NIC, the Chancellor has softened the blow of the NIC rises for employers, due to take effect from April 2011.
Overview The Chancellor made much in his speech of making sure that Britain was seen as being open for business and supporting those that are working hard to grow or set-up new businesses within the UK, both of which will contribute towards getting the UKs economy back on track.The flexible workforce will play a critical part in the recovery of the UK economy and on face value, the new coalition Government appears to be making the right noises in terms of wanting to genuinely understand the self-employed professional market, which I believe the industry should see as optimistic.