Kleinwort Benson – how PBR affects small businesses and entrepreneurs

60 second summary of how the pre-budget report will affect small businesses and entrepreneurs from Kleinwort Benson.

“The big headlines from this year’s Pre-Budget Report have focused on the windfall tax applying to bankers bonuses, but there were a number of changes introduced that will have an impact on small businesses and entrepreneurs.

“There was some positive news for businesses – the planned 1% rise in the corporation tax rate for small businesses has been deferred for a year and HM Revenue and Customs has extended indefinitely the “time to pay” scheme, which allows businesses to defer their tax bills. There was also the announcement of “Patent Box” – a 10% rate of corporation tax that will apply from April 2013 on patent income – a move designed to make investment into innovative industries more attractive. Finally, capital gains tax was left untouched, despite wide-spread speculation that a hike in the rate would be introduced.

“The announcement that from April 2011 national insurance contributions will rise across the board by 1% (0.5% more than previously announced) is a move that will have a real impact on both employers and employees and has been described by the CBI as “a serious mistake” for increasing the burden on businesses in difficult economic conditions. Coupled with the 50% “super” higher rate of income tax being introduced with effect from 6 April 2010 and the further restrictions introduced immediately to higher rate tax relief on pension contributions, the cost of remuneration to employers is steadily increasing. Structuring both remuneration and profit extraction in a tax-efficient way is ever more important.

“As expected, VAT will revert to 17.5% from 1 January 2009, despite wide-spread pressure before the PBR from retailers to leave the 15% rate in place.”