What does the budget mean for you and your business?

So the Chancellor, George Osborne, has just delivered his second budget, but what impact will this have on you, your personal finances, and your business?

The economic forecast

Firstly he started with what looks to be bad news as far as the overall economy is concerned, by revising downwards the growth estimates. Growth for 2011 will be 1.7% rather than the previous forecast of 2.1% and 2012 will be lower than the original forecast as well. This is largely due to slower growth at the end of last year, higher commodity prices and higher inflation. He also confirmed that government borrowing will be slightly higher than previously forecast as well. Inflation is also expected to stay relatively high in the short-term.

Were there any big tax changes?

One of the biggest changes will be that the government will look at the possibility of merging Income Tax and National Insurance. This will come as a big relief to many smaller business, as the current system where the two run along side each other, but without much commonality, creates significant extra work and cost in administration. Merging the two will save both time and money, but this will not be easy, and will take years to achieve.

Further simplification of the tax system is also planned with the abolition of 43 different tax reliefs which are no longer valid.

Corporation Tax

The main rate of Corporation Tax was already due to drop by 1% from April 2011, but this has now been increased to 2%, with further drops coming in later years, so that the main rate will drop to 23% by 2014. The government wants to make Britain a more attractive place to do business and is trying to use these cuts as a way of stimulating inward investment, which should be good news for smaller businesses too.

There were also some changes to Capital Allowances, which is a tax relief business can claim when they buy assets for the business. This will allow businesses investing in new technology or machinery to claim an accelerated tax allowance to reduce their profits and hence their tax. Companies who carry out Research and Development also received a boost by way of an increase in R&D Tax Credits, now allowing them to claim 200% of the cost of the R&D against their tax bills.

Tax avoidance and evasion

Tax avoidance and evasion is high on the government's agenda and plans are being put in place to close loopholes currently being exploited to avoid tax. A review will be carried out of abuses of stamp duty and capital gains taxes, as well as disgused remuneration and low value consignment relief. Over the term of this parliament these changes are expected to deliver £1bn in extra tax income.

Income tax

The main change as far as Income Tax is concerned is the confirmation that the personal allowance will increase for the 2012/13 tax year by £630. This comes on top of the £1,000 increase already planned for 2011/12, and will bring the personal tax free allowance to over £8,100 a year. This will save about 25 million people over £300 a year from April 2012.

Another welcome change is the increase in the official mileage rate, which has been stuck at 40 pence per mile for a number of years, despite recent increases in petrol prices. This will increase to 45 pence per mile from 6th April 2011, and this remains a great way to recharge mileage when you use your own car for business trips.

Capital Gains Tax

The main change to Capital Gains tax is the doubling of Entrepreneurs Relief, from £5 million to £10 million. This is a relief which is available to entrepreneurs who sell their business and allows them to reduce the amount of Capital Gains tax they pay. The increase is designed to make it more attractive for people to start their own business, grow it, and then sell it.

Inheritance tax

No changes to the rates for Inheritance Tax were announced but one interesting change was announced to stimulate people leaving money to charity when they die. In the future, if you leave 10% of your estate to charity, you will get 10% knocked off the rate at which you pay inheritance tax. The estimate is that this will generate an additional £300million for charities.

Fuel Duty

Rising fuel prices have hit us all recently, so it is welcomed that the government is not only deferring the planned rise which was due to happen on April 1st, but it is actually reducing fuel duty by 1 pence per litre from 6pm today (23rd March). The fuel duty escalator which added 1 pence per litre above inflation per year to fuel duty will be scrapped for the rest of this parliament as well, protecting us against further rises.

Conclusion

In conclusion this was a cautious budget which didn't make any major changes, but with the economy still in a fragile state, this was probably for the best. There were some welcome changes which will have a positive impact on smaller businesses, and some possible future changes, such as the merging of Income Tax and National Insurance, which will have an even bigger positive impact.

If you would like to discuss anything in this article then please feel free leave a comment or to contact us

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