What the budget means for businesses

Taxation expert Paul Howard gives an in-depth analysis of the Budget and how it will affect businesses - and their clients

Two weeks before he delivered his Budget report, the Chancellor of the Exchequer warned that it would not be a giveaway Budget. That proved to be the case in more ways than one - not only are there very few handouts, but Mr Darling has also still not given away how he intends to raise or save the many additional billions needed to reduce the enormous budget deficit. A 'comprehensive spending review' has yet to be carried out, and it is widely expected that there will be a second Budget, irrespective of who wins the forthcoming general election.

Here is a breakdown of what the Budget means for businesses.

Giving - and taking away: businesses

 The exemption, from October 2010, from business rates for small businesses occupying properties with a rateable value of up to £6,000 should benefit many small businesses - but, once again, only for a year.

 The Annual Investment Allowance, which gives businesses 100% tax relief on the cost of most plant and equipment except cars, will be improved by doubling the annual limit of qualifying expenditure from £50,000 to £100,000. This will particularly help smaller businesses, many of which will now obtain immediate 100% tax relief on their entire annual capital expenditure. However, the benefits will be massively outweighed by the extra billions that the government expects businesses to cough up by way of increased employer's national insurance contributions from April 2011.

No let-up

The government continues to clamp down on tax evasion, with the announcement of new penalties of up to 200% of undeclared tax in connection with offshore accounts or other offshore assets. In addition, many new measures will prevent the avoidance of tax by a whole variety of means, including remittances from abroad, double tax relief, loans to company shareholders, transactions in shares and other securities and partnership transactions designed to avoid stamp duty land tax.

Tax help for businesses

The 'Time to Pay' scheme, which has enabled many businesses to defer tax payments, is to be extended for the whole lifetime of the next Parliament.

Entrepreneurs' Relief, which reduces the effective capital gains tax rate for individuals who dispose of businesses or certain business assets to 10%, is being improved any doubling the lifetime limit for an individual's qualifying gains from £1 million to £2 million. This is one handout which will apparently not be taken back - but don't get too excited, as the government only expects this to cost it £5 million in 2010/11. However, if tax rates remain unchanged, it means that a few lucky individuals could save up an extra £80,000 when disposing of a business.

Practical help for businesses

Rather than giving tax breaks, this Budget focuses on encouraging growth and investment by assisting investment in other ways.

The main feature is an arrangement for RBS and Lloyds to provide £94 billion of new business loans. In addition, the government is to launch 'UK Finance for Growth', which is designed to streamline and simplify government finance support for business, and to provide a channel for private sector investment.

The emphasis on green investment and new technology continues with the establishment of a £2 billion Green Investment Bank to invest in low carbon infrastructure. Funding of up to £60 million will also be available to develop port sites to support offshore wind turbine manufacturers.

Green investment is also being encouraged by adding zero emission goods vehicles to the categories of plant and equipment that qualify for a 100% first year capital allowance. This treatment will apply to expenditure from April 2010 until April 2015.

And your clients...

Of course, the effects of the Budget on the spending power of the individual is bound to have a knock-on effect for salon owners.

The tax losers - rich and poor

Mr Darling had already made it clear that the majority of his planned increases will hit those who are better off. The Budget report therefore confirms that a 50% tax rate will apply to income of over £150,000 from 6 April 2010, and that those with an income of over £100,000 will see their personal allowances reduced, with no entitlement to any allowances when taxable income is more than £112,950. There will be no respite the following year, with national insurance increases and pension tax relief restrictions for high earners due to kick in on 6 April 2011.

Meanwhile the government now expects the payroll tax to raise much more revenue than originally anticipated, although in most cases the cost will be borne by the banks rather than the recipients of the bonuses!

However, those who are less well off will not escape. The Chancellor chose not to mention in his speech that the 2010/11 personal allowances for all individuals are to be frozen at 2009/10 levels, the taxable income at which individuals start to pay 40% tax (£43,875) will be frozen until at least 2012/13, and the inheritance tax threshold will be frozen until 2014/15. A further 3p increase in fuel duty will affect all motorists and businesses, although this will be implemented in three steps between April 2010 and January 2011. The lower paid will also feel the effect of the national insurance increases from April 2011, which will apply to all workers who pay national insurance contributions. It will even be more expensive to drown our sorrows, with the usual duty increases for beer wines and spirits, but a larger increase of 10% over the rate of inflation for cider!

Giving - and taking away: individuals

The Chancellor did announce a few selected handouts, but some of these are only temporary, or will be paid for by another group of taxpayers:

 The stamp duty land tax exemption for first time buyers of homes costing up to £250,000 is very welcome and may help the recovery of the construction sector. However, this will only last for two years, and it will be funded by increasing the stamp duty on homes costing over £1 million to 5% from 5 April 2011. That increase will be permanent!

And?

This Budget report is almost certainly not the end of the tax and spending story for 2010/11. Predictably, neither the Chancellor nor the Shadow Chancellor have ruled out any types of tax increase after the election, and the additional measures that could be announced by whoever then occupies 11 Downing Street include increasing the standard rate of VAT to 20%; an increase in the rate of VAT on certain goods, such as children's clothes, foodstuffs and books, which are currently zero-rated; bringing forward national insurance increases from 2011 to 2010; and an increase in the rate of capital gains tax.