Budget 2011/2012: what does it mean for your business?

Following the Chancellor’s speech in March, we wanted to update you on the Budget’s potential impact on your business.

The positives:

Reduction in the fuel duty by 1p from 6pm 23 March 2011 and abandonment of other planned increases, while oil remains above $75 a barrel.

Increase in private mileage payments from 40p to 45p per mile from 6 April.

Reduction in Corporation tax main rate to 26% and the small companies’ rate to 20% from 1, April 2011.

Increase in personal allowances and the NI threshold as announced in the June emergency budget to £7,475 and £7,225 respectively.

Regulation moratorium for small businesses – the new regulation will not be imposed on business with less than 10 employees for three years from its regular implementation date.

Time to pay arrangements with HMRC will continue.

Derbyshire and Nottinghamshire has been declared an Enterprise Zone resulting in rates relief, improved broadband infrastructure and enhanced capital allowances.

Increase in the VAT registration threshold to £73,000.

The negatives:

NI Contributions increased by 1% for both employees and employers as planned.

HMRC intend to request financial security for PAYE and NI for companies with poor payment records (in our view, this may well be extended to VAT and corporation tax in the future, ultimately moving towards payments on account like that for self-assessment tax payers).

Continued increases in car and fuel benefits rates.

The additional interesting measures:

A proposed combination of income tax and national insurance.

A review of the effectiveness of the 50% rate in raising revenue.

Treatment of dishonest agents!

Summary of impacts

In our opinion, the Budget contains many surface positives for business owners. However, for tax cuts for business to be beneficial it is important that they are profitable in the first place, and this ultimately relies on demand by consumers. Inflation, economic uncertainty and job losses have had a substantial impact on household confidence and spending over previous months and whilst the increase in personal allowances and the immediate decrease in fuel duty may go some way to helping lower earning household budgets, welfare cuts and increased taxation for higher earners will lead to a shift in demand rather than an overall increase.

A look ahead

2011 is likely to continue to be a tough year; job uncertainty will also undoubtedly sustain the reluctance to increase mortgage commitments so discretionary capital spending is likely to remain at a low level. Businesses that have not managed to adjust their cost structure to balance their budget in the face of lower turnover and reduced margins (and who have been using borrowing to plug the gap) may no longer be able to sustain their finance repayments. This means growth opportunities for business are more likely to come from competitor casualties than an increase in demand.

Take advantage of the opportunities

It’s not all challenges ahead. There are opportunities, if you take the right action as early as possible. If you’re a Belsoft Accounts Plus client, we’ll be looking at incorporating the impact of these changes into your business budgets and cashflow forecasts over the course of the coming quarter. This will ensure that your business can continue to make the adjustments it needs to not only survive over the course of the next year, but to take advantage of the potential opportunities.

If you have any questions about the impact of the Budget on your business, please get in touch on 0115 871 5842 or by email at: info@belsoftstrategic.co.uk