Has emergency budget given your business the blues?

In the wake of what has been billed as the toughest budget for a generation, Rotherham solicitors Oxley and Coward LLP is advising business to be aware of the implications of the coalition's emergency budget and to seek advice on any potential grey areas of concern.

The budget has been largely trailed as one to support business and while there is some good news for small companies, the small print, particularly for those businesses who expect to be most affected by changes to VAT needs to be examined in some detail.

Last month Oxley and Coward's Commercial Property Partner Anthony Ogley warned of the likely increases in Capital Gains Tax (CGT) and while these were not as high as expected, a rise from 18% to 28% (on any gains above the basic rate tax band of £37,400) will still have an impact on those who did not act prior to the budget announcement.

One ray of light for small businesses in this regard is that the 10% CGT rate for entrepreneurial business activities will be extended from the first £2 million to the first £5 million. Plus, Corporation Tax for smaller firms will be cut from 21% to 20% from April next year.

"The general idea seems to be making trading for smaller companies just a bit more attractive," said Rebecca Stopford, Commercial Partner with Oxley and Coward Solicitors LLP. "However, these measures must also be viewed in the light of the increase in VAT which no one, especially local business will be immune from."

The rise in VAT from 17.5% to 20% from the 1st January 2011 will directly tax all consumers and therefore affects business too. While the likely impact on business is still unclear, some commentators have seen the rise as preferable to a direct taxation on small business. Some company owners have already been talking of 'working round' the change and offering goods and services in the New Year at pre-20% levels, but anyone considering such moves would be well advised to take legal advice before doing so.

"The coalition will be introducing anti-forestalling legislation to prevent any businesses seeking to take advantage of the change in the rate," explained Rebecca. "Any business planning to apply the current rate of VAT to goods or services delivered after 4 January 2011 is likely to be disappointed, as anti- avoidance legislation will be dated from the 22 June this year."

Oxley and Coward are experts when it comes to advising on starting up a new business and if you are one of them, this budget has real implications for you too, with many new start-ups expected to benefit from a 'National Insurance Contributions (NICs) holiday. Under the scheme, qualifying employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first 52 weeks of employment of each employee hired in the first year of business. The scheme is likely to run for three years, up to a maximum of 10 new employees and is expected to cover any Class 1 employer NICs due during this period.

"The NICs holiday initiative is designed to encourage enterprise, particularly in areas dependent on public sector employment so is not expected to be introduced in London and the south," continued Rebecca. "But our region seems in with a good chance of the scheme arriving here. However, as will all these things, the devil will be in the detail when the plan is unveiled in full, with an expected start date in September this year."

One of the stings in the tail could be in other restrictions the government may make, such as only being open to businesses which in the words of HM Revenue and Customs "undertake a sufficient degree of new economic activity"1. What this will mean in practice remains to be seen.

"While it is clear the emphasis of this budget is on a deficit reduction strategy; in a mixed bag for business, there are some positives for those with small companies in our region to take from it," added Rebecca. "Questions remain if the effect of all the expenditure cuts, set amid a mix of tax increases and decreases will have the desired effect, or will only serve to depress growth in our region and the nation more generally. Time will tell. The only certainty is that businesses are going to need access to sound legal advice more than ever in an economic climate that remains in a state of flux."

For a free initial consultation, contact Rebecca Stopford on 01709 510999 or email company@oxcow.co.uk

ENDS

Photograph and caption

Rebecca Stopford, Commercial Partner with Oxley & Coward Solicitors LLP in Rotherham.

Notes to editors:

1.HM Revenue and Customs, Regional Employer NICs holiday for new business, 22 June 2010

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