Small businesses

A considered approach to implementing tax reforms

The Chancellor of the Exchequer, George Osborne MP, announced a number of measures that will affect small businesses around the UK in the new coalition government’s first Budget.

Mr Osborne said the Lib-Con coalition would not be making any cuts to capital expenditure during this parliament and announced the introduction of a new tax scheme for small businesses. Under the new initiative, small businesses will be exempt from up to £5,000 of employer National Insurance payments for the first ten employees that are hired. This means new companies could save up to £50,000.

However, the scheme will not be offered to companies starting up in London or the South-East, the Chancellor said.

Mr Osborne explained, “The government will shortly announce details of a scheme to help new businesses in targeted areas of the UK that need it most. During a three-year qualifying period, new businesses which start up in these areas will receive a substantial reduction in their employer National Insurance contributions”, Mr Osborne explained.  

He added: “The countries and regions which will benefit will be Scotland, Wales, Northern Ireland, the North-East, Yorkshire and the Humber, the North-West, the East Midlands, the West Midlands and the South-West”.
Mr Osborne commented: “The government understands the importance of the whole corporate tax system to business and will set out a more detailed programme for reform in the autumn. This will allow it to take a considered approach to implementing tax reforms and to listen to the needs of business through greater consultation. 

The government will provide greater certainty for business by committing to principles for corporate tax 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”.

Small businesses stand to see a more immediate reduction in the tax after the government announced that small companies corporation tax will be cut to 20 per cent in 2011.

The Chancellor also announced that the enterprise finance guarantee scheme will be extended, ensuring that finance for businesses remains accessible.

One of the announcements made that will affect individual taxpayers was the confirmation of an increase in the personal tax allowance.  The Chancellor announced a £1,000 increase, meaning income tax will now only be paid on earnings above £7,475 from April next year.

Mr Osborne also confirmed that Value Added Tax (VAT) will rise to 20 per cent from 4 January next year.