It's a very important point. Small businesses employ over 13 million people and constitute around 95% of all companies in Britain. We are, in reality, the engine room of the UK economy as by proportion of our size, we pay more tax into the system than any other part. However, the figures for small companies failing right now are staggering - literally hundreds per week fail.
Most small businesses are failing on two counts - a lack of new orders and a lack of cash. It is very difficult in a downturn for the Government to conjure up more orders, although there were some things they could have done, but they can give access to more cash. After all they have given £ billions of it to the banking sector which had caused much of the problems.
That said - here are some highlights of the budget and business generally worth noting from this week.
The Budget Highlights
- Corporation Tax
The first big area is that any company making losses will have the ability to claim more of the tax back that they have paid over the last 3 years. This is an important consideration when filing this year's accounts and how much loss has been accrued.
- Capital Allowance
The main business capital allowance has now risen from 20% to 40%. This is a big concession for those businesses who have invested in machinery or new technology and is also a good incentive to think about capital vs. overheads.
- Strategic Investment
£750 million has been ear-marked for strategic investments in emerging technologies. It is well worth getting up to speed on this as your business may qualify particularly if you are working in the arena of more carbon or environmental friendly technology.
- Credit Insurance
Up to £5 billion of extra cash has been committed to cover trade credit for those businesses who have experienced a reduction in the level of cover. I think there is an opportunity missed here as we have seen from the Enterprise Loan Guarantee scheme that banks have abused the system and I think credit insurers will also. I think insurers will use this extra cover to merely cover their existing book more. The issue for many companies is that they are having to find new clients and they will need new cover in order to deal with them and this has not been forthcoming. Once again I think this is putting money into the wrong area and all it is doing is maintaining existing sales.
- Safeguarding Jobs
I have to admit I thought this was just a soundbite with not a scrap of credible detail to tell us how 500,000 jobs will be saved. I think most small businesses would like to know where they can apply today in order to avoid redundancies they may be making but somehow I don't think either the Chancellor or PM has thought this through, but it was carefully designed to sound as if they were doing something.
- Work Experience
Some £250 million is set aside to help people in certain industries to get job experience. Precious little detail has been given but this could be of real importance in the coming months as this can help provide business with a helping hand on staff levels without having to hire or pay contractors.
- Statutory Redundancy Payments
The minimum payment per week of service is now £380, up from £350, and this is an important factor when costing out job cuts. Also, the maximum pay out is now moved up from £10,500 to £11,400. Unions had fought to get this higher as redundancy is actually a very cheap option in the current business climate and not enough thought is going into the process by managers.
- Environmental Initiatives
If you are a low carbon industry, then there is good news. The Government has pledged a further £1 billion to be invested in low carbon businesses. A further £405 million is available to support low carbon manufacturers and if you are into offshore wind projects, you have hit the jackpot as £525 million will be spent on them.
An interesting little extra is that £525 million will be spent on energy efficient projects in homes, firms and public buildings. For all builders reading this blog, I would get up to speed on this as this could be a lucrative new business opportunity in the coming year.
- Childcare For Workers
Many firms encounter the difficulty of childcare for employees. While the new initiative to compensate grandparents in their pension for caring for grandchildren does not seem much, it actually may filter down. Hopefully more grandparents will get involved as their sacrifice of time may be compensated and this may take the strain financially off some workers who have to pay significant sums in order to provide nanny services. It may also ease pressure on working hours as grandparents tend to be more flexible. I have real hope that this may help.
- Government Savings
Tax loopholes are closing and there is an aim to raise £1 billion via this. For those firms and individuals who have been using such loopholes, I dare say this may up your fees to your clever accountants and lawyers to find the next 'loophole'. If the Government hits anywhere near this figure I will be very surprised.
Public spending is coming down in 2011 from 1.1% to 0.7%. The figure seems innocuous but if you have a business depending on this spend, then find something new to do.
£9 billion in efficiencies are planned - I assume this will mean clearing out dross in vast new departments like Dept. of Business Secretary and the Office of the Deputy Prime Minister but how the stupid policies of increasing bureaucracy and Government via Assemblies have backfired just as everyone thought they would. So much money is absorbed by all this, it is a tragedy that we have to go back and save it. If only they would completely overhaul public sector expenses then I am sure we could save a ton more.
- Housing
Some good news for the building industry as more stopped housing projects will be restarted as £500 million will be ploughed into these but it does include £100 million for local authorities to build energy efficient homes. For those with businesses around armed forces camps, £50 million has been specifically set aside to upgrades of their homes.
- Property
Lots of mixed messages here on holiday or second homes and the detail needs to be gone through, but for many who had bought second homes and hoped to get some rental income then they are going to be sadly disappointed about how that will get treated for tax. Also, there is more of a potential hit when selling. What this does on the buy-to-let side needs to be teased out. For many who bought their second homes and planning the financials based on existing legislation, this will be a major blow and some would argue a very unfair one. I can see a need for sound advice from agents and accountants here and for all second property owners I would go back and look at the Terms and Conditions from your advisers at the time of purchase particularly if you were lured in by some 'glossy' adverts and sales speak offering 'guaranteed returns'. The industry, sadly, is not noted for it.
- Duty Increases
Travel is once again targeted with an increase on fuel duty of 2p per litre from September and I have to say this is once again a very hard tax. The cost of travel is heavy enough as it is and public transport is so overly expensive in Britain that people have no choice but to use cars. This is a big cost to individuals and to business as this cost will be passed on to customers. Via staff mileage allowances or cost of delivery, costs rise and have to be absorbed or passed on. This really is a stupid extra cost at this time as it will penalise business and individuals.
Naturally the perennial duty rises on alcohol and tobacco are high. I got lost as to why this is done - either this is a problem area in society, draining the NHS, or it is a good thing, either way the tax is neither punitive nor helpful.
- The Car Industry
Good news at last for the beleaguered car makers and their dealers who have suffered a greater than 30% drop in sales. The Government announced a £2,000 scrappage scheme for cars over 10 years old to be given as a credit against a new car. Already 8 out of 10 leading car makers have committed to the scheme which extends only to the first 300,000 cars bought under the scheme. The caveat is that the industry has to provide £1,000 of the £2,000. I cannot help feeling that again an opportunity has been missed as scrappage has worked well on the continent to support sales - dealer discounts are already heavy so will we end up paying more because the dealers will withdraw the discounts to favour this scheme? I wonder.
- Personal Tax
For those earning above £100,000 a year, their personal allowance will be halved while those earning above £150,000 a year will have their allowance removed and see all earnings above that taxed at 50% - together with NI changes this constitutes over 60% tax for some earners. It will mean that firms may well look at alternative ways of rewarding their top earners with greater dividends offered or stock options or deferred bonuses. There has been much howling about this as 'manifesto reneging' and even Tony Blair believes it is folly. Some are concerned it will cause a new drain on top talent. Who knows, but it is something that I think all companies will get 'creative' about and I don't think it will raise as much tax as Ministers think as those around the various marks will simply take the offending portion as something new.
A nasty piece of work is the scrapping of the top rate tax relief on pension contributions. I would suspect that most companies who care about this will simply put it as an employer contribution instead and take it off the salary bill. I just think it sends all the wrong messages about savings.
With this, at least the ISA limit has gone up for personal annual tax free savings to £10,200 (for over 50s this year and everyone else next year - why wait?). For the clever minded there are OIC schemes which allow you to use Capital Gains allowances in the same year to maximise tax free investment. Get good advice from your IFA on all this as my wife (who is an IFA) has just done the same for me.
There is also going to be a reform on tax on profits earned abroad - watch out for this one.
I recently got into an argument on the Linked In IOD Forum with an accountant who asserted that we should 'Choose how much tax we pay' and the statute allows this. He defended the likes of Philip Green saying he had done nothing against the law.
That's as maybe but I think that those wealthy people who deliberately go out to avoid paying a fair tax on what they earn are morally corrupt. So much so, I have opted out of that discussion group and it's the last reason I needed to opt out of the IOD which seems to be a knocking shop for such people.
That said I still believe that people should use their allowances and the tax system allows you to be sensible about your future. So those high earners earning around the £100,000 and £150,000 thresholds can take a 'salary sacrifice' and put the offending part of their salary into their pensions. Of course, that means it cannot be spent but it is about time that we had a good reason to save for retirement. Also, this needs to be clarified as new tax rules may frown on such an option - which I cannot see any wrong in doing.
Another scheme I have seen is deliberate tax avoidance which is setting up a limited company and taking the earnings as dividends and so tax is lower and using non-earning spouses and children's allowances. I think, again, this is wrong but according to the IOD accountant, perfectly legal.
Entrepreneurs
There has been much uproar that this was budget against entrepreneurs, in that it discourages people from taking risks. I don't see the logic in this - The Sunday Times Rich List has JK Rowling worth over £400 million yet she pays full tax and lives in Scotland. For the person willing to get up and work hard on their ideas, you will still be rich at the end of it. Maybe a bit less so, but rich.
Here's my logic. An entrepreneur in the UK starts here not initially to get rich but to make an idea work. For that they need market conditions, customers, access to markets and an environment ripe for their product or services' success. If they went to Cyprus to make that happen I would assert that they have less chance of success. If they went to the US, probably the same unless you have experience of the US markets. The simple fact is, entrepreneurs use the markets they are in to create their success - no market, no success.
Peter Hargreaves, the Financial Advice magnate, says he is going to Monaco or the Isle of Man - fine, go there. To get that rich on the back of financial advice then he probably gave interesting advice and I wonder if the majority of his clients are as rich as him to be able to make the same choice. But he has made his millions and he could not have made it without his customers who are here in the UK. No market, no success. So what does he want? To live in the Isle of Man and then start up another high earning business? He couldn't do it without having his customers at his doorstep, unless he was creative enough to know how to do it - and then he wouldn't be bleating about it.
So it seems that these people want more than being rich despite the fact it is normal, honest, tax paying people like you and I who have made them rich by buying their products and services. Perhaps if they had told us that before they touched us up for our money we would not have bought from them. Stelios is a prime example of this, always bemoaning 'Fat Cats' like Barclaycard who took a percentage of his take or the airport charging for things. He made millions and declares himself non-dom to avoid paying tax. So who exactly is the fat cat?
It is infuriating to think that such rich people think the country owes them more than they deserve and the customers they sell to. Makes you wonder why we buy their products with that kind of disdainful attitude. Remember that the next time you want a pension or walk into an Arkadia store like TopShop.
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