George Osborne opened this year’s budget by highlighting that economic recovery was taking longer than expected but stated that it is this government’s ‘aim to set free the aspirations of this nation’. In a rather hostile environment, that many viewers find amusing whilst others find it annoying, the chancellor continued by revising the growth expectations for the country before setting out the governments budgetary plans.
Many of the headlines are suggesting that this was a budget for builders and pint drinkers. The reality is that there are some real changes that will affect you, your business and your family. The main headlines are-
- Increased personal allowance to £10,000
- New scheme for tax-free childcare
- Corporation tax rate reduced to 20%
- Reduction in employer NI by up to £2000
- Cut on beer tax and no rise in fuel duty
- Increased government spending
Business in the Budget
The chancellor highlighted the intention to establish one of the most competitive tax systems in the world. This has largely been done by reducing the corporation tax rate.
- Corporation tax will be lowered to 21% from April 2014 and further reduced to 20% from April 2015 creating the lowest business tax amongst leading economic countries. George Osborne stated that “Britain is open for business”. The reduction in corporation tax will be paid for by an increase of 0.142% in the levy on banks.
- Employer National Insurance will be reduced in a new allowance of £2000 to be offset against National Insurance contributions for all businesses with employees. This is a real saving for any small business that employs staff. Often referred to as a ‘tax on jobs’ this news will also help small business looking to take on their first employees. It is estimated that the changes to National Insurance will mean that 450,000 businesses will not pay national insurance.
Personal issues in the Budget
- The personal tax allowance will be increased in April 2013 from £8,105 to £9,440. The following year it will increase to £10,000 a year ahead of previous plans. This was widely expected as the Liberal Democrats made it part of their election campaign prior to the coalition being formed.
- From April 2013 the total amount you can save in cash/shares ISA’s will be increased to £11,520
- New childcare vouchers will be introduced in 2015/16 for working families. They will allow parents to claim 20% off the first £6,000 of childcare costs for each child. This will only apply to parents earning less than £150,000. The scheme will be introduced in August 2015 for under 5’s and extended the following year to children under 12. There will also be increased childcare support for those low-income working families on universal credit.
- Aggressive tax avoidance will be targeted. New measures will be introduced under the budget to prevent tax avoidance and evasion. Further ‘name and shame’ tactics will be used to highlight businesses that actively avoid tax. In addition, Mr Osborne says agreements with the Isle of Man, Guernsey and Jersey will bring in over a billion pounds of unpaid taxes.
Other Taxes in the Budget
- The planned increase in fuel duty for September 2013 will be scrapped.
- Beer duty escalator will be scrapped cancelling the automatic above inflation tax increase levied on beer every year. Other alcoholic beverage duties are unchanged.
Other budget news
- Flat rate pension worth £144 a week to be brought forward to 2016.
- New ‘help to buy’ scheme to assist those that cannot save a deposit to buy a home.
- There will be a 1% reduction in spending across government departments. Schools and the NHS will not be affected.
- Public sector pay increases will be limited to 1% in 2015/16. The military will be exempt from this cap on increases.
- George Osborne confirmed the UK’s “long-standing commitment to the world’s poorest to spend 0.7% of our national income on international development”
- The Chancellor promises to increase the spending on infrastructure by £3bn in 2015/16.
- Stamp duty abolished for shares traded in the AIM and the ISDX Growth Market.
It was reported that the Office for Budget Responsibility (OBR) has revised growth expectations in the UK this year to 0.6%, increasing to 1.8% in 2014, 2.3% in 2015, 2.7% in 2016 and 2.8% in 2017. Whilst this does show a slow and continuous growth many commentators will highlight that growth expectations have been revised downwards and that more should be done to stimulate growth.
There are many critics that will highlight areas of the budget that could be better. These include borrowing more to spend on infrastructure and reducing VAT to stimulate the high street. Let us look at the positive points for small businesses. Corporation tax on profits has been reduced to the lowest amongst the G20. The £2000 national insurance allowance for employers will save businesses money and may encourage firms to employ new staff. Both of these moves have been welcomed by many business leaders. Parents will benefit from an increase in the personal allowance and a new childcare scheme that may save £1200 per year per child.
We doubt that anyone was dancing in the street following the 2013 budget. Whilst the UK economy struggles to recover and the government continues to try and balance the books it is unlikely that we will see any groundbreaking policies introduced by the current coalition government in any budget.
The above information is provided as a summary of the budget. Full details of the budget can be found at www.gov.uk. For financial advice and guidance on how the budget may affect you or your business we recommend you seek advice from an accountant or tax advisor.