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Budget 2011 - how will it affect business?

Tax | National Insurance

By Justin Modray, published 23 March 2011.
Helpful? 4

How will the Budget affect businesses across the country?

The Chancellor wants to boost private sector business. And, let's face it, he needs to given the Government's massive gamble that private sector growth will outweigh public sector spending cuts.

Today's Budget contains a mix of tax and bureaucracy cuts intended to help existing business (large and small) and attract multi-national companies to set up shop in Britain. Let's take a look at the key announcements:

Corporation Tax

The main corporation tax rate, already due to fall from 28% to 27% from 6 April 2011, will be cut by a further 1% to 26%. It will then fall by a further 1% a year until 2014 as previously announced, which means a very globally competitive rate of 23%. The banks won't however benefit from this, with bank levy increases offsetting the tax cut.

Small businesses with profits below £300,000 will see their tax rate fall from 21% to 209% from 6 April 2011.

National Insurance

As previously announced, employer NICs will rise by 1% from 6 April 2011, although the earnings threshold will rise to avoid a rise on staff earning below £20,000 a year. So employer Class 1 NICs will rise from 12.8% on weekly earnings above £110 to 13.8% on earnings above £136.

VAT

The threshold for VAT registration will rise from £70,000 to £73,000 from 6 April 2011.

Enterprise Zones

The Government will set up 21 Enterprise Zones in troubled areas and offer businesses located in these areas 100% relief from business rates (effectively council tax for companies) for 5 years.

Business Rates

The small business rate relief holiday, announced last year, will be extended for a further year from 1 October 2011. Good news for those small businesses exempt from business rates under the current holiday.

R&D Spending

Companies spending money on research and development can currently enjoy 175% tax credits, i.e. for every £100 spent on qualifying R&D they can deduct £175 from taxable income. This will increase to £200 from 6 April 2011 and £225 the following year.

Planning Permission

Planning rules will be relaxed to promote more business growth. Developers will no longer require permission to convert empty commercial buildings into housing and sustainable projects will be assumed to be approved (with the exception of green belt land). Local councils will also be allowed to auction off public sector land with pre-approved planning permission.

While the sentiment to grow business is admirable, expect a major backlash from those who end up having factories and housing estates pop up on their doorstep. Mind you, probably not a bad time to buy a deserted warehouse or office building on the cheap...

Entrepreneur's Relief

Those qualifying for this relief (which means only 10% tax on gains) will see their lifetime allowance double to £10 million. This should hopefully encourage more entrepreneurs to set up small businesses and create jobs.

REITs

Real Estate Investment Trusts are a type of fund that allow tax efficient investment in property. The Government proposes to relax rules by 2012 to make it easier to set up and run a REIT. Again, the intention is obviously to boost property development and investment.

Red Tape

The Chancellor wants to attack the myriad of petty rules and regulations that strangle small businesses. A key proposal is that all start-ups and companies employing fewer than 10 staff will be exempt from all new regulations from 1 April for 3 years.

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