Chancellor George Osborne delivered the coalition’s second Budget on 23rd March 2011. Despite Osborne heralding it as 'unashamedly pro-growth, pro-enterprise and pro-aspiration', it was predicted that the Budget 2011 would be uneventful.
However, there were some fairly significant concessions and breaks affecting small business owners, which form part of the Government’s overwhelming aim to make the UK an entrepreneurial and nurturing environment, to attract new business start-ups and make it the most competitive tax system in the G20.
The key announcements were as follows:
- a further 1% cut in the main corporation tax from April 2011 to 26%, falling to 23% by 2014
- the small business rate relief holiday will be extended by one year from 1 October 2011
- a moratorium exempting micro-businesses and start-ups from new domestic regulation for three years from 1 April 2011
- 11 Enterprise Zones across England, with simplified planning rules, superfast broadband and tax breaks for businesses, with local areas to bid for a further 10
- taking forward the Office of Tax Simplification's recommendations to simplify the tax system by consulting on options for integrating the operation of income tax and national insurance contributions and announcing an intention to scrap 43 tax reliefs
- a new £250 million scheme that, in England, will offer over 10,000 first time buyers an equity investment of 20% towards the deposit on new-build homes and reforms to the stamp duty land tax treatment of 'bulk' purchases of residential property
- up to 50,000 additional apprenticeships and 100,000 work placements for young people
- a 1 penny per litre cut in fuel duty from 6pm tonight, abolishing the 2009 Budget fuel duty escalator and replacing it with a fair fuel stabiliser and delaying inflation increases this year and next
- the Approved Mileage Allowance Payments rate will increase from 2011/12 from 40p to 45p
- an increase in the personal allowance of £630 in 2012/13 to £8,105
- various measures to crack down on tax avoidance
- reforms to the taxation of non-domiciled individuals, increasing the £30,000 annual charge to £50,000 for those resident for 12 or more years, removing the tax on income remitted for commercial investment in UK businesses and introducing a statutory residence test
- a one-tenth reduction in the inheritance tax rate when at least one tenth of a person's net estate is donated to charity and Gift Aid on small donations without requiring declarations
The increase in the personal allowance is estimated will take 260,000 more people out of income tax and reduce the tax paid by 25 million people by £48 on average. Furthermore, the basic rate limit has also been decreased by £630, therefore avoiding the creation of additional higher rate tax payers.
The tax avoidance crackdown complements HMRC’s recent announcements of Business Records Checks and the so-called ‘Plumber’s Amnesty’. The government’s message with this Budget is that they want to close down schemes which disguise remuneration, avoid corporation tax, VAT and stamp duty land tax. The Budget outlines specific measures such as reducing the benefit of the VAT loophole surrounding Low Value Consignment Relief, which can currently mean goods such as CDs, DVDs, memory cards etc are VAT-free.
IR35 was a focal point for the OTS, yet it had little mention in Osborne’s speech, but delving through the full Budget report, it becomes apparent why. The government has decided to retain IR35, as abolition would put ‘substantial revenue at risk’.
It was also hoped that the government might change their proposals to amend hot topics such as the Furnished Holiday Let rules, the tax savings for employer-supported childcare, the tax relief restrictions for pensions, but sadly, they remain unchanged.
In summary, it is disappointing that the government did not reverse their decision on some of their proposals and did not tackle some of the contentious areas such as IR35. But ultimately, most will be pleasantly surprised by Budget 2011, particularly entrepreneurs and SMEs, as there is a clear message of support for the innovation of the private sector.