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Who'd Want To Be Chancellor in 2009? Ian Selwood - Partner, Randall & Payne. Alistair Darling’s soundbite said it all, the UK is officially entering its “worst recession since World War II”. With months of doom and gloom between the pre-Budget report and the Chancellor’s speech, few businesses were expecting miracles from this year’s Budget but there were a few encouraging proposals on the day. Recognising the role of business in helping the UK through the recession, the Chancellor introduced a number of measures aimed at stimulating the economy. For cash-strapped small businesses the Chancellor increased capital allowances encouraging them to invest more than £50,000 on capital expenditure before April 2010, a temporary increase from 20% to 40%. This move will allow businesses to bring forward planned investment on certain types of capital expenditure with the exception of buildings, cars and some long-life assets. However, this cash flow advantage is only of benefit to businesses already prepared to invest substantially as it speeds up tax relief rather than increase it. Any business planning to invest significantly in new equipment in the next two years should consider bringing this forward if cash flow will allow. A scheme to help firms cope with credit risk has also been unveiled in the Budget, along with other steps aimed at helping the UK's struggling businesses. The credit insurance scheme will provide cover to businesses operating in the UK for six months if their private insurers reduce their cover. Such insurance is vital to protect small firms against late payment. It will be available to the 14,000 businesses that already use credit insurance. The Chancellor said that firms with cash flow problems would also benefit from a programme allowing loss-making firms to reclaim taxes paid on earlier profits. This scheme will be extended to allow firms to reclaim taxes on profits made in the past three years and will be available until November 2010. He said that 100,000 businesses would have their full current losses wiped out. People earning over £100,000 per annum, who tend to be the business leaders, are the big losers with a loss in personal allowances and an increase in the tax rate to 50% for those earning over £150,000 combined with a reduction in their ability to invest into pensions. Whilst many people will feel that these high earners can afford to and should pay extra, this could be the last straw for some who may take their businesses abroad. For business owners with this level of income, it may be worth planning ahead to draw additional income during 2009-10 rather than in 2010-11, when rates will be higher. They should however bear in mind that this will bring their tax payment date forward. One bone of contention is the temporary decrease in VAT from 17.5% to 15%. Unveiled with great pride last year, this measure was designed to boost the economy by encouraging consumer spending with little success. Adversely, to cope with the change, businesses were forced to invest heavily in changing their systems with little or no visible reward. If this initiative was designed to help businesses, why not extend it beyond December 2009 when businesses will again face the rigmarole of changing back to the original rate? In summary, the Chancellor has the unenviable task of simultaneously balancing the books and stimulating the economy. The Exchequer’s purse is limited by falling tax revenues but outgoings have increased as more people become reliant on benefits. He has little room for manoeuvre in this Budget which is why we are seeing an unprecedented increase in borrowing. Perhaps if there had been less willingness to spend in the past more could have been done now. Click here to download a PDF of the latest tax tables for 2009. For advice on how Budget 2009 will affect your business call Randall & Payne on 01453 763471.
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