On the 24th March the Chancellor, Alastair Darling delivered the 2010 budget to Parliament which included a number of measures which will affect small businesses such as eBay sellers.
The bad news is that many of the standard allowances and thresholds have been frozen for two to five years, which introduces hidden tax rises as the cost of living and inflation rises. However there are some other measures worth familiarizing yourself with which could affect your business planning.
Business Taxation Changes
Corporation tax for businesses with small profits (less than £300,000) remains frozen for the next fiscal year at 21 percent. This represents a discount on the full rate of corporation tax which remains at 28 per cent. On the downside if a director takes a loan from his company which is released or written off after 24 March 2010 a corporation tax deduction will not be available. This is a ploy which has been attractive to directors to spread tax liabilities into a future tax year.
“If your business occupies premises with a rateable value of up to £6,000 per annum you’ll be able to claim full exemption from business rates for the 12 months commencing 1st October 2010.”
If your business occupies premises with a rateable value of up to £6,000 per annum you’ll be able to claim full exemption from business rates for the 12 months commencing 1st October 2010. If your business premises have a rateable value of up to £12,000 you’ll also be able to claim a reduction in rates. This benefit is for England only, different business rate schemes apply for Scotland and Wales.
To assist small businesses to expand the Annual Investment Allowance is to be doubled to £100,000. The chancellor claimed this would enable most firms to deduct the full cost of any plant or machinery from taxable profits. There seems some doubt just how much benefit this will give as the Institute of Directors assert that most small firms invest less than the current £50,000 so doubling the allowance will assist very few companies.
Investment for businesses
There will be a new National investment corporation, to improve Government help to small and medium sized businesses with turnover of between £1m and £25m. This is unlikely to help the smaller businesses as it’s for companies seeking to raise between £2m and £10m and in any event no date has been set for the launch of the fund.
Banks will be encouraged to make loans to businesses with RBS and Lloyds (who the Government now hold a stake in) to make a total of £94bn of new business loans. The intention is that almost half of this amount will be loans to small businesses and there will be a new Credit Adjudicator who will fast track complaints from small businesses who believe they have been unfairly denied access to credit.
In addition an additional £15bn of central Government contracts will be awarded to small and medium sized businesses.
Personal Taxation Changes
All personal tax allowances have been frozen at last year’s rates, this is in effect an increase in personal taxation as the value of the allowance is eroded by inflation. There is another tax increase for those that earn over £100,000 as high earners will lose £1.00 of their personal allowance for every £2.00 of their income that exceeds the £100,000 limit. This equates to an increased tax rate of 60% for that portion of high earners income.
The Income Tax rates have also been frozen at last year’s levels (Basic rate – 20% – £0 – £37,400, Higher rate – 40% – £37,401 to £150,000, Additional rate – 50% – Over £150,000). This again represents a tax increase in real terms as wages rise and the cost of living increases.
For the first time some of Royal Mail’s services (ParcelForce, Special Delivery 9.00am, Royal Mail Tracked, Royal Mail Same Day, International Airsure and all International contract services) will become liable for VAT from 31st January 2011. Services provided to private individuals will continue to be exempt from VAT, as will International services to be delivered outside the EU as that is outside the scope of VAT.
For the vast majority of small independent businesses that trade on eBay it’s not a great budget. There’s little assistance for sole traders or partnerships and some stealth tax rises in the form of the frozen personal allowances and Income Tax bands. For those larger businesses that operate as limited companies additional availability of investment is welcome, as are the business rates exemption.