Pre-Budget Report 2008 – small business impact & reaction

Pre-Budget Report 2008 – details and commentary. A Budget boost for small business and entrepreneurs, but will the jam today be countered by economic pain tomorrow?

By News Desk
24th November 2008 at 17:27

Pre-Budget 2008 good news for small business?This news item will be updated with new comment and more considered insight as and when it comes in, but the following highlights the key elements of this year’s Pre-Budget Report as it relates to small businesses.

1.  Reduction of VAT from 17.5% to 15% from 1 December 2008 until the end of 2009

[Theoretically designed to boost consumer spending, may benefit some 2 million non-VAT registered businesses, but … with prices falling anyway and people tightening their belts will consumers continue to spend?  Also see the comments on the unintended consequence of VAT reductions for some small businesses.  Update: big questions too about the administrative burden of changing receipts and systems for small retailers and whether these retailers will pass on benefits in an obvious way when they’re already discounting. 2.5% discount is hardly going to create a sales stampede on the high street.]

2.  Inroduction of a Small Business Finance Scheme to support up to £1 billion of bank lending to SMEs to be delivered through the RDAs via Business Link from early in 2009.

[Not clear right now the criteria firms will need to meet or the precise mechanism for delivery of this support will take – hopefully easier to access than the Small Firms Loan Guarantee scheme]

3.  A further £1 billion to support bank lending to exporters through the Export Credits Guaranttee Department, designed to give smaller exporters greater access to short term working capital.

4.  £50 million to provide equity or quasi-equity to over-leveraged SMEs, plus a further £25 million delivered by RDAs to support small businesses in difficulty.

5.  HMRC Business Payment Support Service to allow companies facing difficulties paying their tax bills an opportunity to set a repayment timetable tailored to their needs.

6.  Increase in National Insurance by 0.5% from 2011 and a 45% tax rate for salaries of £150,000 and above after the next election.

[Part of the jam today, repay later approach.  The new tax band certainly psychologically harmful to many, and a very real pain in the pocket to the most successful entrepreneurs.]

As Dr John Philpott of the Chartered Institute of Personnel and Development puts it:

There is certainly a good spread of jam today in this budget.  But with the bill so clearly in the post, including a hike in national insurance contributions for employers and employees just as the economy is expected to be recovering, there is a real danger that this budget may do as much to slow medium-term jobs growth as it does to slow short-term job cuts.

7.  Suspension of the increase in small firms corporation tax, holding at 21% from April, rather than rising to 22%.

Andrew Jupp, head of tax at accountancy firm Tenon says:

These are very welcome measures for entrepreneurial and family businesses, although I had hoped the Chancellor would reduce the small companies rate back to 20% or even lower

8.  More generous tax relief for SMEs making a loss – a temporary extension of the carry-back of losses up to £50,000 from 1 to 3 years.

9.  The postponement of the introdution of ‘income-shifting’ – a benefit to family entrepreneurial businesses.

Andrew Jupp, from Tenon again says:

We have been saying that the rules would be unworkable ever since they were first announced. This is a welcome relief for these businesses which can now concentrate on creating wealth rather than worrying about how they are going to be taxed

10.  Dividends from foreign subsidiares to be exempted from tax.

[Relevant to medium sized businesses, rather than small]

11.  Reversal of rate relief changes on empty properties – for 2009/10 empty properties with a rateable value less than £15,000 will be exempt from business rates.

Richard Lambert, CBI director-general says:

The reversal of empty property rate relief changes will be welcome to holders of small properties but regrettably excludes larger factories and warehouses which need similar help.

For further practical details take a look at the Pre-Budget Report guide for small business owners put together by SmallBizPod’s very own accountant.

Also the official line and links to some useful documents at the Business Link website.

[Picture credit: j0nn licenced fro Flickr]

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  1. Ed Stivala says:

    Great summary, thanks for posting it Alex.

    I was not aware of the suspension of the proposed income-shifting rules. (In fact I am note even up to date on what the proposed rules are!!). Could this be a minor topic / question to address in a future podcast?

    Kind Regards


  2. […] Just read a very conscise and helpful review of yesterdays pre-budget announcements over at the Small Biz Blog. […]

  3. SmallBizPod says:

    Hi Ed, good idea. I’ll cover it off in the next podcast and point to some real experts on the subject too.



  4. Rose Lewis says:

    Somehow we have spent a lot of time talking, worrying and creating a panic over the fact that our economy will shrink by 1.5% next year
    Yes it is a real concern, but surely we should be spending significantly more time talking about the 98.5% that remains. Is it an illusion to consider the vast majority of business in the economy still sound?
    With government increasing spending next year, by maybe 2-3%, one could argue that in the private sector this 98.5% is in reality only 98 or even 97%, but that’s kind of an academic argument. It still means that there’s a lot of work out there and that’s where businesses should be focusing to increase their share. Truth is, the real impact on a creative business of the economy being 97% of the last year’s size (or 101.5%) is kind of negligible.
    One less latte a day per member of staff ? No Xmas party? That’s about the size of it.
    Don’t wait to make a new year’s resolution: start planning right now for the positive. For those who are prepared to think laterally, act flexibly and get stuck in, it really isn’t as bad as many folk would have you believe.

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