Friday April 24, 2009

Dear Reader

Budget issue

The new top rate tax band might have grabbed many of the headlines, but the main news to come out of the budget in our opinion was the current and planned level of government borrowing. The chancellor's predictions for economic growth appear at best highly optimistic. They are substantially higher than all other forecasts for our economy over the next few years. Taking this into account, the planned levels of borrowing and debt seem dramatically understated. This would seem to be a high risk strategy - try taking such an approach to your bank manager - "my sales are down so I've decided to increase my costs" - and see how much they will lend you. We will look in this issue at the impact of the budget on small businesses and small business owners.

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VAT News

The government confirmed that VAT will go back to 17.5% from 1st January 2010. Be aware if you issue invoices that span the change back date as there may be a VAT implication for that portion of the invoice covering the period after 1st Jan 2010. The VAT registration threshhold has gone up slightly to £68,000. If your annual sales exceed or are about to exceed this amount, you must start the registration process. If you sell services overseas or buy services from abroad there are also implications for your VAT reporting from next year, more on that in the months to come.

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Personal Tax News

The big news on this front was the new 50% tax band which will apply to taxable income above £150K and will commence next April 2010. There will also be changes to the tax relieft on pension contributions for these earners, halving it to 20% from 40%. People earning in excess of £100K will also see an increase in tax caused by restrictions to their personal allowances. There was an announcement of an increase in the ISA limit for over 50s this year and everyone next year to £10,200. This is particularly interesting for the self-employed who could use the cash-ISA limit of £5100 to save business income tax free - give me a call if you'd like to understand how to do this.

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Business Tax News

The budget was relatively quiet on business specific news. There was confirmation of the news that companies could offset current year losses against the last 2 years' profits to get some tax back. It used to be just the previous year. Small business corporation tax rates remain at 21% but this is likely to rise to 22% from 2010. Remember that if you are having difficulty making any tax payment at present, whether corporate, VAT or PAYE the government has set up a scheme to help spread the payments, more information is available at http://www.hmrc.gov.uk/pbr2008/business-payment.htm.

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