Accounting for Change

Inspire Business Technology offers advice on dealing with the Pre Budget Report changes.

VAT rate cut to 15% from 1 December 2008 to 31 December 2009

This measure is intended to reduce high street prices but may in fact serve only to increase retailer margins. It will effect just about all of us either as consumers, retailers or businesses having to deal with an administrative change. It will also affect many businesses cash flow by reducing the amount of VAT within the working capital cycle by over 14%.

There is also the obvious impact on accounting practices and software, there will be implications for getting this incorrect. Software packages such as Sage have to be amended.

Corporation Tax Changes

There are two main changes which will affect most companies:

  • Up to £50,000 of losses made in a trading period ending between 28 November 2008 and 23 November 2009 can be carried back and used against profits for up to the preceding 3 years rather than just the previous year.
  • The planned increase in corporation tax on 1 April 2009, putting the rate up from 21% to 22%, has been deferred until 1 April 2010.

Stay of Execution on Legislation against Dividends

The government has announced it is not to proceed with the income shifting legislation for now. Income shifting is where income, often in the form of dividends, is diverted to a lower rate tax payer, for example a spouse or child.

Although the government have again gone on record to say how "unfair" they consider this practice to be (that a family company should spread its hard earned profits amongst the family - How dare they!) they believe small businesses need to concentrate on running their businesses rather than dealing with another administrative burden. At least some partial common sense being applied here then!

All the indications are that this legislation may well be deferred until 2011 or 2012 (and quite possibly the next term of government) which we think provides a window of opportunity to review your current situation and make legitimate tax savings in the mean time.

Help for Struggling Taxpayers

The chancellor announced the creation of a Business Support Service to help those in financial difficulties make tax payments (VAT, Corporation Tax and PAYE/NIC) over a period of time which is affordable. This measure is not quite the deferment of VAT/CT which was rumoured prior to the announcement. The government claim that with the new service most decisions can be arrived at within 10 minutes!

We are maintaining a healthy scepticism on this one and wait to see what it will offer over and above negotiating with the current HMRC Debt Management Units or utilising other funded programmes currently available for crown debt arrears.

The HMRC Business Payment Support Line number is 0845 302 1435 and is open Monday - Friday 8.00am to 8.00 pm, and Saturday and Sunday 8.00 am - 4.00 pm.

Personal Tax Changes

Often the most closely scrutinised by the media, a number of personal tax changes were announced, many of which had been speculated by the press:

  • Temporary increase in personal allowance to be made permanent.
  • A 45% income tax rate for earnings over £150,000 from April 2011.
  • Restrictions on personal allowances from April 2010 for £100,000+ earners.
  • All national insurance rates to increase by 0.5% from April 2011 giving an effective top tax rate of 46.5%!
  • NIC threshold to match that of Income Tax.

The increase in employers' national insurance of 0.5% will cost a company with a payroll of £500,000 an extra £2,500 per year.

If you would like to discuss how any of the above issues affect you call us on 0191 487 7074.

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