In keeping with tradition, the 2012 budget pleased some and disappointed others. Exactly how the Chancellor’s deliberations will affect small business depends very much on what the business is and its size.
For example, the immediate reduction in corporation tax to 24%, with a further 2% reduction planned to take place by 2014, is definitely of more benefit to large businesses, although there are those at the bottom end of the scale who will profit from this largesse. However, many small businesses already only pay 20% as they produce profits lower than the threshold levels for corporation tax and will see no change.
Of more concern to small business is the government’s refusal to cancel the proposed rise in fuel duty, planned for August, 2012. This will have a negative impact on all firms that use a lot of their own vehicles, but none more so than road haulage contractors, who are heavily reliant on fuel. Increased costs will either have to be passed on, leading to a decrease in competitiveness, or absorbed.
Many small businesses are suffering from a shortage of credit, so it was positive news when George Osborne confirmed his intention of increasing the supply of credit to small businesses through a loan scheme backed by the government.
However, the measure that brought the biggest cry of joy was probably the one that proposes to simplify the tax system. From 2013, a great many businesses will be able to place less reliance on their accountants and more on their own financial software to handle their cash flow more efficiently as their tax will be calculated on money actually received minus allowable business expenses, excluding orders that are in the pipeline but which have yet to be paid for. At the moment, tax is calculated by what is known as the accrual method, which means that companies have to pay tax on orders received even if they have not yet taken payment. If the scheme is successful, the Treasury plans to expand its scope in future years to cover an estimated three million businesses. While this may be seen as bad news for accounting firms, it is good news for manufacturers of financial software.
In a further easing of administration costs, it was also confirmed that the government plans to move forward with the scheme to integrate national insurance and income tax, as previously announced in 2011. This means that firms will not have to operate two payroll tax systems, thereby easing the bureaucratic load.
For young people aged between 18 and 24 who want to start their own business, the Chancellor announced a new scheme of enterprise loans. It is planned to start in March, 2013, and will help up to 7,000 youngsters with loans of varying amounts to get their business ideas off the ground.
Overall, the response of small business has not been totally unfavourable, which is to say they would have liked to have seen more help forthcoming in what is a very difficult environment, but understand the Chancellor’s room for manoeuvre is somewhat limited.
About the Author: James Bentham is a UK blogger writing on behalf of Iris Exchequer, who specialise in financial software. He has over 6 years’ experience in creating content for the web and specialises in business and technology topics.
Image: Maxwell Hamilton / Flickr