.... more than just numbers_tm

Prepare for the VAT increase

How do you prepare for the VAT increase in January 2011?  Here are some tips to help you make the best of the situation.

Firstly, analyse margins. Retailers should be planning to reduce cost prices for goods and increase selling prices to reflect the lower margins. Timing is important; January is already a busy time for retailers so ensure you have resources in place to manage the change. HMRC will take the view ‘you have been warned’.  

Review supplier contracts and don't get sucked into any 'beat the VAT increase' promotions unnecessarily. Unless cashflow is tight or VAT is irrecoverable, you’ll only incur an extra £25 cost for every £1,000 you spend, so weigh up the options. If you have payments on account then you’ll gain some relief from the effect of the rise based on pre-VAT rate rise quarterly liabilities.

Make sure staff understand the tax point rules and review your company policy (if you don’t have one then get one). Each business is unique, so it is not necessary for all businesses to have identical policies relating to the VAT rate increase. It is, however, essential that any policy adopted fits within the scope of the tax point rules as well as the anti-forestalling legislation.

Be aware of the anti-forestalling regulations; no problem to explore opportunities for pre-invoicing and payment at the lower 17.5% rate but ensure that you are operating under allowable legislation. Fines leveraged by HMRC have never been harsher.

Make sure your accounting is accurate and don't expect leniency from HMRC. Charities and VAT-exempt businesses will be hardest hit because they are unable to recover VAT on purchases. The 2011 budgets will be 2.5% smaller than this year. If you're considering making a capital investment, you may wish to consider bringing the purchase forward.  

Think about marketing. Retailers may wish to consider boosting pre-Christmas sales by advertising the lower VAT rate currently in place. Post-January, "no VAT rise" pricing can be compensated for by boosting margins on other lines to compensate.

Don't fall foul of fines for inaccurate bookkeeping practice. Where credit or debit notes are issued, businesses should ensure that any VAT credit or debit is applied at the correct rate by referencing the rate applied for the original supply.

If you are on the Flat Rate Scheme take the opportunity to review your position. These schemes will be revised at the same time so take advice to establish if there is the chance to use a lower banding. This could have an impact on cashflow.

Pay particular attention if you or your clients import. Import VAT deferment levels should be reviewed. SIVA (Simplified Import VAT Accounting) could be a good option but you'll need to take advice on this.

Commons vote confirms VAT rise

Attempts in Parliament to head off the government's proposed increase in the rate of VAT have been defeated.

The Chancellor, George Osborne announced in the emergency Budget last month that the standard rate of VAT would rise from 17.5 per cent to 20 per cent as from 4 January 2011.

An amendment to the Finance Bill to block the hike, put forward by  the nationalist parties, was voted down by a majority of 295 votes in  the House of Commons.

Another challenge, backed by Labour, called for a delay in  implementing the increase so that its effects could be assessed. This,  too, was defeated by a government majority of 75.

A further Labour amendment, which would have seen charities and other groups exempted from the rise, was similarly rejected.

The voting formed part of Parliament's debate of the Finance Bill,  which enacts the measures set out in the Budget.

David Gauke, the Treasury Minister, describing the VAT rise as "one  of the few levers available" to the government to address the shortfall  in the public finances, said: "Any sensible government would consider  it. And, given the circumstances we're in, any government would do it.  We had to raise VAT because there was no money left."

He dismissed calls for a time limiting sunset clause on the increase, arguing that it would have an adverse impact on the pattern of  government expenditure.

Emergency Budget - what it might mean for you

The coalition government between the Conservatives and Liberal Democrats are set to launch an emergency Budget on 22 June; it is likely to herald several tax changes.

Areas where there will be major announcements include capital gains  tax, inheritance tax, corporation tax and national insurance  contributions. A number of the government's plans have already been set out in  previous statements, but there are still several details yet to be clarified.

One thing, though, is certain: tax planning will become ever more  important. Planning, too, to make the most of what promises to be  difficult economic times ahead.

Below is a brief summary of the most likely changes to arrive with  the Budget. If you would like expert, professional advice and help on  how best to manage the new tax and business landscape, please don't  hesitate to contact us.

The economy

There will be an accelerated reduction in the budget deficit, with £6 billion coming this year (although the commitment contains a proviso  that the level of the cuts will be subject to advice from the Treasury  and the Bank of England).

The Office for Budget Responsibility (OBR), set up by the coalition  government to provide independent economic forecasts, has predicted that rate at which the UK economy is likely to expand will be lower than  previously estimated.

According to the OBR, economic growth for 2011 will be 2.6 per cent,  down from the 3 per cent to 3.5 per cent anticipated by the previous  government.

However, public borrowing is likely to remain at £155 billion for  2011, the OBR report said, some £20 billion less than first forecast.  Total net borrowing over the next five years is expected to be £23  billion less than predicted in the last administration's March Budget.

The OBR said that the public deficit will fall to 10.5 per cent of  GDP in the 2010-11 financial year, down from the 11.1 per cent estimated by Labour. Overall net government debt, which represents total  government borrowing, should slip back to 62.2 per cent of GDP in  2010-11, compared with the previous estimate of 63.6 per cent.

The structural deficit, which is that segment of the deficit not  immediately reduced by economic growth, is predicted to increase from  the previous forecast of 7.3 per cent of GDP in 2010-11 to 8 per cent,  the OBR said.

The new figures, however, will only apply up until the emergency  Budget of 22 June since any government action that will be announced  then has not so far been factored in.

A full spending review is to be held in the autumn, following a  consultative process involving all tiers of government and the private  sector.

The coalition has ruled out joining the euro for the duration of the  next Parliament.

Tax

Income tax

The personal allowance for income tax is to be increased, the first  stage of which is to take effect from April 2011. There is to be a  long-term policy of raising the threshold to £10,000, graduated across a number of years.

Inheritance  tax

This will take precedence over Conservative plans to raise the  inheritance tax threshold to £1 million from its present £325,000.  Liberal Democrat proposals for a 'mansion tax' on properties worth £2  million or more is to be scrapped.

National insurance contributions

The National Insurance Contribution Bill, introduced in the Queen's  Speech, restated the government's intention to reverse Labour's plans  for a 1 per cent rise in NICs due to come into effect in April 2011.

The Bill will mean that employers will not face a rise in the  contributions they must pay. Although employees will still see their  contributions go up, the money raised will be used to pay for a staged  increase in the income tax personal allowance threshold, the long-term  aim being to lift it to £10,000.

The government said that under the full changes most people would be  "better off relative to the previous government's plan, and relative to  no changes, all low and middle income employees would pay less tax and  NICs overall, and employees on the main rate earning under £20,000 would pay less NICs".

In effect, that may mean that NICs for those earning more than £20,000 but less than £45,000 will increase but will be balanced by the rise in the income tax personal allowance.

Married allowances

Another Conservative manifesto commitment to introduce transferable  tax allowances for married couples stays in place, although Liberal  Democrat MPs will be allowed to abstain in the Commons vote on the  measure.

Capital gains tax

At present, CGT is only payable on gains over £10,100 in any tax  year, chargeable at a rate of 18 per cent.

A Treasury document released to coincide with the Queen's Speech  reiterated the government's commitment to raise capital gains tax on  non-business assets. It stated: "Capital gains on non-business assets  will be taxed at rates closer to those applied to income tax."

However, the statement adopted a slight shift in semantic tone  compared with previous announcements, which had used "similar" rather  than "closer" to indicate the measure of any increase in CGT, suggesting it may be as high as 40 per cent, a 22 per cent jump from its current  level.

One interpretation is that the Chancellor may now choose to raise the CGT rate to a level below the 40 per cent income tax rate, or to  re-introduce a tapering system that would reduce the amount of tax  payable on assets according to the length of time they have been held  (the longer, the lower the rate of the tax charge). Tapering would  effectively be a tax on short-term speculation rather than longer-term  investment.

The government may also opt to clarify what is defined as a business  asset, perhaps to cover shares held by employees as a way of protecting  business investors. Another possibility may be to extend lifetime  entrepreneurs' relief.

The present individual annual allowance for tax-free capital gains is £10,100. This may be lowered, although it would have an impact on taxpayers who only make moderate profits from their assets.

Older investors - perhaps those aged 65 and over  - may be granted a CGT concession so that they can use the ownership of a second home to  help finance their retirements.

Corporation tax

Plans by the government to reduce the higher rate of corporation tax  could be phased in over a period of years. Lord Sassoon, the Treasury's commercial secretary, said in a House of Lords speech that the government is committed to lower, simpler and  more predictable taxes.

However, Lord Sassoon added that the emergency Budget would be  setting out a five-year plan for the reduction and reform of business  tax, suggesting that the proposed cut in corporation tax from 28 per cent to 25 per cent would be staggered over the lifetime of the current  Parliament.

The Chancellor committed the government to a reduction on corporation tax in a speech he made to the CBI last month.

It is estimated that a 3 per cent cut in the headline tax would  involve an annual loss to the Treasury of some £4.5 billion. The  Chancellor may recoup some of the fall in revenue by abolishing or  streamlining the tax reliefs currently available to businesses.

No statement has yet been made on whether there will be a  corresponding cut in small company corporation tax.

VAT

Speculation is rife that the Chancellor will give serious  consideration to some sort of graduated VAT increase, perhaps to as much as 20 per cent (the current level is 17.5 per cent, 2.5 per cent below  the European average).

On the plus side, a rise in VAT has immediacy in producing regular revenue. The downside for the government is that any increase could dampen consumer spending or fuel inflation.

Were the increases to be phased in over a period of time, however,  they may encourage consumers to bring their spending forward to avoid  the higher charge promised in later years. A hike in VAT may reflect a  growing move towards indirect taxation which shifts the tax emphasis  away from income and capital and towards spending.

A rise in VAT to 20 per cent would generate an extra £11.25 billion  of government income per year.

Other tax measures

A switch to per-plane rather than per-passenger duty should be implemented.

The two parties have agreed to reduce the availability of child trust funds and tax credits for higher earners, those households, perhaps, on more than £50,000 a year.

A banking levy is also to be introduced.

Business

The government is to focus on improving the flow of credit to smaller firms. This will include the possibility of establishing a loan  guarantee scheme to replace the Enterprise Finance Guarantee programme  and the use of net lending targets for nationalised banks.

Some backdated demands for business rates will be cancelled.

In his first major speech as Business Secretary, Vince Cable  committed the government to taking a tougher line on parts of the  banking system that have "not served enterprise in this country as well  as they could".

Mr Cable promised to "redouble our efforts to ensure that bank  lending agreements from banks that have benefited from taxpayer subsidy  are being honoured - especially for SMEs".

He set out three possible routes to improving the present squeeze on  lending: separating retail and investment banking, resolving the  question of a levy on the banks to reflect the fact the taxpayer is  providing insurance, and ensuring that banks' lending agreements are  being kept.

Pensions

The default retirement age is likely to be phased out, and a review  will be held to establish the dates at which the state pension  retirement age begins to rise to 66. There is a commitment that, in the  case of men, this will not be before 2016 and, in the case of women, not before 2020.

Rules requiring mandatory annuitisation at 75 are to be dropped. At  the moment, people who establish a pension savings fund must use the  money to purchase an annuity, or an annual income for life, when they  reach the age of 75, preventing them from passing on the capital to  their heirs.

The link between the basic state pension and earnings will be  restored from April 2011 with a guarantee that pensions are raised by  the higher of earnings, prices or 2.5 per cent, as proposed by the  Liberal Democrats.

Thus far, the government has not offered a policy on pensions tax  relief. The Liberal Democrats had been in support of abolishing all  higher tax rate relief, capping relief at the basic rate of income tax.

Employment

All existing welfare-to-work programmes are to end and are to be  replaced by a single welfare-to-work programme.

Those Jobseekers' Allowance claimants who must deal with the most  significant barriers to work will be referred to new welfare-to-work  scheme at once rather than after 12 months. In the case of those  Jobseekers' Allowance claimants aged under 25, they will be referred to  the programme after six months.

The EU

There will be no further transfer of sovereignty or powers to the EU  over the course of the next Parliament.

The government will work to make sure that the application of the  Working Time Directive in the UK is limited.

Any future European treaty that involves the transfer of power will  be subject to a referendum.

The environment

A green investment bank will be set up.

The government is to press ahead with a high-speed rail network but  will reject plans for additional runways at Gatwick and Stansted.

A national planning statement will be drawn up to allow a process for replacing existing nuclear power stations with new ones, although  Liberal Democrat MPs will be allowed to abstain on any vote on the  plans.

HMRC gets tough on dodgy directors facing court action

By Insolvency  News, 14 June 2010.

The number of directors of insolvent firms facing disqualification proceedings for not paying business tax has jumped 24 per cent in the  year to March 2010.

A total of 813 directors had proceedings brought against them in  court for non-payment of company tax in the year ending 31 March 2010,  compared to 654 in the previous year, according to figures obtained by  independent finance provider Syscap.

Separate figures from the Insolvency Service show that the number of  company insolvencies declined by 17.8 per cent over the same period.

Disqualification orders ban individuals from being directors of a  limited company or from being involved in the promotion, formation or  management of a company for up to 15 years. Directors who have been  disqualified have unlimited liability for the losses of any company that they have been involved with in contravention of the disqualification  order and may also be criminally liable.

Syscap claimed the figures show that despite HM Revenue & Customs (HMRC) taking a less aggressive approach to collecting tax from  distressed businesses, HMRC is increasingly prepared to instruct the  Insolvency Service to take individual directors to court.

Philip White, chief executive of Syscap, said: “This is a huge  increase in court proceedings against directors. It’s all the more  shocking because the number of company insolvencies has declined sharply over the last year.

“These figures are a wake up call for directors of companies  encountering cashflow difficulties. On the one hand HMRC is allowing  companies to defer tax, but with the other it is taking an increasingly  aggressive stance towards individual Directors who fail to meet their  obligations to the taxman.”€�

He adds: “Directors often choose to pay suppliers over HMRC in the  belief that this will ensure the immediate survival of their businesses. Continuing to trade while neglecting to pay HMRC is a risky strategy  that could backfire if the company subsequently becomes insolvent.”

Syscap points out that HMRC is rejecting a higher proportion of  applications for its Time to Pay scheme and is scaling back the amount  of tax it is prepared to allow businesses to defer.

The firm claims that businesses unable to meet their tax obligations  and who are not eligible for Time to Pay can still obtain credit to pay  their tax from funders.

White says: “With HMRC making it harder for businesses to defer tax  under Time to Pay and the government under intense pressure to maximise  tax receipts, we may well see even more prosecutions of directors for  failing to meet company tax obligations in the coming year.”

Charity shop profits show 8% rise on same quarter last year

Association of Charity Shops attributes rise in  profitability to cost-cutting. The profits of charity shops were 8 per cent higher in the first  quarter of this year than in the same period last year, according to  figures published today by the Association of Charity Shops.

Quarterly sales data collated by the association, which has about 300 members, showed income, excluding Gift Aid, reached £110m during the  period. This was just 0.4 per cent up on last year.

David  Moir, head of policy & public affairs at the association, attributed the rise in profitability at a time of flat sales to shops reducing  their costs.

"Increased charity shop profits - that is, vital  funds raised for charity - are very welcome at a time when demand for  charity services is high," said Moir.

About 70 per cent of the  6,800 shops represented by the association participated in the survey.  Shop sales recovered after a poor January, when the weather was bad  and prevented many shop volunteers going to work.

Moir said:  "Like other retailers, charity shops took a real hit from the poor  weather early on. These sales figures suggest charity shops were perhaps hit a bit harder. So the fact that they increased their profits is  excellent news."

BRC-Nielsen shop price index May 2010: Shop Price Inflation Slows

Overall shop price inflation slowed to 1.8% in May from 2.0% in  April. Food inflation rose to 2.2% in May from 2.0% in April. Non-food  inflation slowed to 1.6% in May from 2.0% in April.

Stephen  Robertson, British Retail Consortium Director General, said: "In May, overall shop price inflation slowed compared with the previous  month, despite big rises in some costs.

"Past rises in the  price of oil continue to put pressure on transport costs. International  shipping prices are up over a third. Cotton prices are up 40 per cent.

"But clothes and electricals are cheaper than they were last year, as retailers hold prices down in the face of customers' reluctance to  spend. With margins already being squeezed, a VAT increase  would be an inflationary pressure too far.

"Food inflation was  up slightly, but that should ease. Tinned and packet foods were the main cause because recent falls in commodities, such as wheat and coffee,  have yet to work through to shop prices."

Mike Watkins, Senior  Manager, Retailer Services, Nielsen comments: "Food inflation  that is imported, seasonal or weather related is still impacting shop  prices but the rate of increase since the start of the year has started  to slow. With headline sales growth in food retailing struggling to get  to three per cent in recent weeks, retailers have to maintain promotions and offer further savings to get sales momentum. Shoppers continue to  be price-aware and weak demand has not helped non-food retailing where  we have seen more discounting and bigger price reductions - all of which can be expected to continue on the high street for the immediate  future."

Queen’s Speech confirms tax plans

The government used the Queen's Speech to flag up measures aimed at  reforming the tax system for both businesses and individuals in order to make it "fairer and simpler".

The National Insurance Contribution Bill restated the government's  intention to reverse Labour's plans for a 1 per cent rise in NICs due to come into effect in April 2011.

The Bill will mean that employers will not face a rise in the  contributions they must pay. Although employees will still see their  contributions go up, the money raised will be used to pay for a staged  increase in the income tax personal allowance threshold, the long-term  aim being to lift it to £10,000.

The government said that under the full changes most people would be  "better off relative to the previous government's plan, and relative to  no changes, all low and middle income employees would pay less tax and  NICs overall, and employees on the main rate earning under £20,000 would pay less NICs".

In effect, that may mean that NICs for those earning more than  £20,000 but less than £45,000 will increase but will be balanced by the  rise in the income tax personal allowance.

A Treasury document released to coincide with the Queen's Speech  reiterated the government's commitment to raise capital gains tax on  non-business assets.

It stated: "Capital gains on non-business assets will be taxed at  rates closer to those applied to income tax."

However, the statement adopted a slight shift in semantic tone  compared with previous announcements, which had used "similar" rather  than "closer" to indicate the measure of any increase in CGT, suggesting it may be as high as 40 per cent, a 22 per cent jump from its current  level.

One interpretation is that, come the emergency Budget on 22 June, the Chancellor, George Osborne may now choose to raise the CGT rate to a  level below the 40 per cent income tax rate.

The government also looks set to go ahead with a reduction in  corporation tax and with plans to streamline the business tax relief  system.

Chancellor planning long-term cuts in corporation tax

The Chancellor, George Osborne has pledged that the government will  simplify the business tax system and will introduce a five-year plan to  reduce corporation tax.He made the announcement in a speech to the CBI's annual dinner. Mr  Osborne informed guests that he would work to create in the UK the "most competitive corporate tax regime in the G20".

The government is seeking to cut the headline rate of large company  corporation tax from its current 28 per cent.

A part of the promised changes will be a streamlining of the present  business reliefs and allowances system, along with anti-avoidance  measures.

Mr Osborne said: "I want corporate tax reform to be a priority for  this government.

"We will reform the corporate tax system by simplifying reliefs and  allowances, and tackling avoidance, in order to reduce headline rates.  Our aim is to create the most competitive corporate tax regime in the  G20, while protecting manufacturing industries."

A 1 per cent reduction in corporation tax represents a loss of about  £800 million to the Treasury.

The Conservatives promised a 3 per cent reduction in corporation tax  in their manifesto, but whether the cut is introduced at once or  graduated over the length of the Parliament will only become clear when  the emergency Budget is delivered.

Following concerted efforts by manufacturing groups, the Chancellor  has opted not to ditch the research and development tax credit.

Touching on the broader economic picture, Mr Osborne said that the  business community can expect three things from the government.

"First, the sunlight to confidence and stability instead of living in the shadow of debt and uncertainty. You need to know that the  government is controlling spending, dealing with its debts, so that you  are not hit by ever-higher interest rates and never-ending tax  increases.

"Second, the freedom to compete. You might have the best product in  the world, but how can you win the order when the taxes you pay and the  regulation you face price you out of the market?

"And third, the raw materials to succeed. I don't just mean the iron  ore, copper and oil - important as our heavy industry is. I mean the raw materials of new industries, like an educated workforce, a welfare  system that rewards work, modern energy, digital and transport  networks."

Citing the need to make the business tax system fairer and less  complex, he added that UK "corporate tax rates are increasingly  uncompetitive", with a "World Economic Forum report ranking the UK 84th  out of 133 countries in terms of the competitiveness of the tax system".

He continued: "As well as lower rates and a simpler system, I want to reform the complex controlled foreign companies rules that have driven  businesses overseas. I want multinationals coming to the UK, not  leaving."

This could mean dropping or softening the impact of the overseas  subsidiary levy introduced by the last government.

Official interest rate change

Official loan rate. The so-called ‘official rate’ of interest that the  Taxman uses to work out whether a loan produces a taxable benefit-  in-kind (BiK) has been changed with effect from April 1 2010. The rate  is now set at 4% per annum.

In practice. Where, for example, your  director’s loan account is overdrawn, you must work out the interest  that would be due on the amount that you owe using the official rate. If you pay less than this, the difference is taxable. The main exception  to this charge is where the loan hasn’t exceeded £5,000 at any time during the tax year.

Tip. Leave paying  interest on your director’s loan account until the end of the tax year.  As long as you pay your company interest at the official rate, or  higher, by then you’ll escape the BiK charge and you’ll have had the use of the loan account interest-free until then. That could be up to a  year.

The Taxman’s official rate of interest is 4% per year from April. If you  don’t pay interest of at least that rate on money you owe your company,  there will be a tax charge. But you can leave paying the interest until  the end of the tax year meaning you have interest-free use of it until  then.

VAT rise could ‘harm’ the economy

An increase in VAT to 20 per cent could lead to job losses and could  have an adverse impact on the economy, a leading business group has  claimed.

The British Retail Consortium (BRC) has published the findings of an  independent analysis aimed at quantifying the effects that a rise in VAT would create.

The report suggested that a standard rate of VAT at 20 per cent would cost 163,000 jobs over four years and would dampen consumer spending by £3.6 billion during the same period.

The extra tax would lower high street demand, squeeze retailers'  profits, push up prices and see jobs cut as businesses look to reduce  costs.

The BRC said that there is no silver bullet that will allow the  government to raise large amounts of revenue without having a  substantial effect on the economy. Employment, consumption and GDP would all be hit significantly by tax rises.

The BRC wants the government to prioritise public spending cuts over  tax increases as a way of tackling the deficit.

According to the report, in its first year, a VAT rate of 20 % would reduce the deficit by £11.3 billion, but by the end of that first year there would be 30,000 fewer jobs in the UK - across all employment sectors - than if there had been no increase. After four years that  figure would be 163,000 fewer jobs.

A year on from raising VAT to 20 per cent, consumer spending would be £1.6 billion less than it would have been and after four years, £3.6  billion less.

The analysis, which was conducted for the BRC by the Centre for  Economics and Business Research, also looked at the impact of a range of other possible VAT increases. A 19 % VAT rate would cost 99,000  jobs over four years while a 22.5 per cent rate would mean 317,000 fewer jobs over the same period.

Stephen Robertson, the BRC's director general, commented: "For the  first time we have clear, independent evidence showing VAT and NI  increases will have a deep and long-lasting impact on jobs and growth.

"The budget deficit is serious. It has to be tackled but proposals  must be judged against the implications for jobs and growth revealed by  this new information.

"Business growth will get the country out of the hole it's in. The  government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises."

A government spokesman insisted that the government has no plans to  raise the rate of VAT in the Budget.

Inflation and VAT concerns make life worse for savers

News that the UK consumer price index rate of inflation made a  surprise jump to 3.7 per cent last month will add to the discomfort of  the nation's savers.

The CPI inflation rate climbed from the 3.4 per cent recorded in  March.

The rise was fuelled by hikes in the price of clothing and food, and  by the return of VAT to its old rate of 17.5 per cent.

The retail price index, which includes mortgage costs and is the  gauge most often used by employers for wage settlements, also leaped to  5.3 per cent from the 4.4 per cent of March.

Inflation has now been on an upward curve for eight consecutive  months, although the Bank of England has been forecasting a fall later  in the year.

The effect is likely further to erode the real value of savings  funds, hitting those in particular who depend on interest returns to  boost their incomes.

With the official Bank rate still sat at 0.5 per cent, many deposit  accounts are offering meagre returns.

At the current rate of inflation, and once taxes have been factored  in, a basic rate taxpayer will need an account delivering 4.625 % to outstrip the rise in prices, while a higher rate taxpayer will  require a 6.17 % interest rate.

For basic rate taxpayers, there are just 20 accounts available that  enable them to retain the value of their money; for higher rate  taxpayers that figure comes down to just one, according to the financial website, Moneyfacts.co.uk.

Darren Cook of Moneyfacts said: "Rises in the rate of inflation  continue to antagonise savers who are already struggling to achieve a  competitive rate of return on their money.

"The qualifying restrictions on those products that do beat tax and  inflation are likely to be suitable for only a small proportion of  savers. A spiralling inflation rate, which could be aggravated by the  predicted rise in VAT can only point towards a bank base rate increase  sooner rather than later."

Andrew Hagger of Moneynet, another financial website, warned that any rise in VAT could make matters worse: "In recent months more and more  people are looking to savings products, but they have been hit by the  double whammy of low rates and high inflation. If VAT goes up to 20 % they will be hit even harder."

Coalition government unveils fuller set of business-related policies

The Conservative-Liberal Democrat coalition government has published a broader account of the measures it intends to take in a number of  areas.

The economy, employment, tax and business regulation all feature  prominently. What follows is a brief summary of the latest coalition  agreement document and previous announcements.

The economy

There will be an accelerated reduction in the budget deficit, with £6 billion coming this year (although the commitment contains a proviso  that the level of the cuts will be subject to advice from the Treasury  and the Bank of England). The main burden of the cuts will be felt in  reduced government spending rather than tax increases.

An independent Office for Budgetary Responsibility will be  established to produce new growth and borrowing forecasts.

A full spending review is to be held in the autumn, following a  consultative process involving all tiers of government and the private  sector.

The coalition has ruled out joining the euro for the duration of the  next Parliament.

Personal Tax

Income tax

The personal allowance for income tax is to be increased, the first  stage of which is to take effect from April 2011. There is to be a  long-term policy of raising the threshold to £10,000, graduated across a number of years.

The threshold for the personal allowance that is tapered down may be  reduced from £100,000 so that only those on lower incomes gain from the  full new allowance.

Inheritance tax

This will take precedence over Conservative plans to raise the  inheritance tax threshold to £1 million from its present £325,000.  Liberal Democrat proposals for a 'mansion tax' on properties worth £2  million or more is to be scrapped.

National insurance contributions

The funds required for an increase in the income tax personal  allowance will come from the dropping of Conservative proposals to raise employees' national insurance contribution thresholds. The increase in  employers' national contribution thresholds, however, will go ahead.

Married allowances

Another Conservative manifesto commitment to introduce transferable  tax allowances for married couples stays in place, although Liberal  Democrat MPs will be allowed to abstain in the Commons vote on the  measure.

Capital gains tax

Capital gains tax on non-business assets will, at some point, rise to a rate similar to that of income tax; perhaps 30 per cent, 40 per cent  or 50 per cent. Exemptions, though, will be made for entrepreneurial  business activities. A rise to 30 per cent would return the CGT to its  level before taper relief was introduced. 

At present, CGT is only payable on gains over £10,100 in any tax  year, chargeable at a rate of 18 per cent. The threshold at which CGT  becomes payable may be lowered, perhaps to as low as £2,000.

No details have been released on when the new rate will take effect,  although it is possible it may be from April 2011. backdating the rate  to April 2010 would be an unusual move.

Council tax

Council tax will be frozen for at least one at current rates.

Business tax

Corporation tax

The government has committed itself to a "long-term" plan to reduce  the headline rate of corporation tax, possibly from 28 per cent to 25  per cent.

A part of the promised changes will involve a streamlining of the  present business reliefs and allowances.

Plans to increase small company corporation tax from 21 per cent to  22 per cent have already been postponed in the last Budget. The new  government may look at reducing the rate instead.

National insurance  contributions

The funds required for an increase in the income tax personal  allowance will come from the dropping of Conservative proposals to raise employees' national insurance contribution thresholds. The increase in  employers' national contribution thresholds, however, will go ahead.

R&D tax relief

The government appears willing to allow the research and development  tax credit to remain in place, but the remainder of the present system  of business reliefs and allowances is to streamlined and simplified.

Small business taxation

The small business taxation regime is to undergo a major overhaul.  This may include corporation tax rates and the IR35, which could be  replaced with a simpler system that clarifies the tax status of  self-employment.

VAT

No pre-Budget announcements on VAT have so far been made.

However, speculation is rife that the Chancellor will give serious  consideration to some sort of graduated increase, perhaps to as much as  20 per cent (the current level is 17.5 per cent, 2.5 per cent below the  European average).

It seems unlikely that a 5 per cent VAT charge will be imposed on  goods that are currently zero-rated, such as books and food.

Other tax measures

A switch to per-plane rather than per-passenger duty will be  implemented.

The two parties have agreed to reduce the availability of child trust funds and tax credits for higher earners, those households, perhaps, on more than £50,000 a year.

A banking levy is also to be introduced.

The policy document indicates that the government plans to raise the  proportion of revenue that comes from environmental taxes.

Business

The government is to focus on improving the flow of credit to smaller firms. This will include the possibility of establishing a loan  guarantee scheme to replace the Enterprise Finance Guarantee programme  and the use of net lending targets for nationalised banks.

Some backdated demands for business rates will be cancelled. Business rate relief is to be made automatic for all qualifying firms  (currently, businesses must apply to their local councils for the rebate on their rates).

It is an aspiration of the government that 25 per cent of all  government contracts - which will be published online and free - should  go to SMEs.

There is to be a 'one-in-one-out' rule for business regulations,  whereby no new regulation is introduced without other regulations being  cut by a greater amount, along with 'sunset' clauses that ensure  existing regulations are reviewed for their relevance.

There will be and end to the practice of 'gold plating' EU rules so  that UK businesses do not suffer a competitive disadvantage.

The 'tick-box' culture of regulation enforcement is to be replaced  with a 'risk-based' approach that targets inspections at high-risk  organisations.

Employment laws are to be scrutinised to ensure they maximise  flexibility and competitiveness for the employer while also safeguarding fairness for the employee.

Regional Development Agencies are to be replaced with local  enterprise partnerships between councils and businesses.

Employment

The right to request flexible working is to be extended to cover all  employees rather than just parents.

The government has said it will take steps to "limit" the application of the EU Working Time Directive, from which the UK has an opt-out,  allowing employees who agree to work longer than the 48-hour week  stipulated in the directive.

The default retirement age of 65 is to be abolished on a phased  basis.

The policy document sets out a general commitment to working with  business and the pensions industry to support "auto-enrolment" in the  new workplace pension schemes that are due to be introduced.

On pay, the new government has promised to "promote equal pay and  take a range of measures to end discrimination in the workplace".

All existing welfare-to-work programmes are to end and are to be  replaced by a single welfare-to-work programme.

Those Jobseekers' Allowance claimants who must deal with the most  significant barriers to work will be referred to new welfare-to-work  scheme at once rather than after 12 months. In the case of those  Jobseekers' Allowance claimants aged under 25 will be referred to the  programme after six months.

There is to be a cap on non-EU migration.

Pensions

The default retirement age is to be phased out, and a review will be  held to establish the dates at which the state pension retirement age  begins to rise to 66. There is a commitment that, in the case of men,  this will not be before 2016 and, in the case of women, not before 2020.

Rules requiring mandatory annuitisation at 75 are to be dropped. At  the moment, people who establish a pension savings fund must use the  money to purchase an annuity, or an annual income for life, when they  reach the age of 75, preventing them from passing on the capital to  their heirs.

The link between the basic state pension and earnings will be  restored from April 2011 with a guarantee that pensions are raised by  the higher of earnings, prices or 2.5 per cent, as proposed by the  Liberal Democrats.

Thus far, the government has not offered a policy on pensions tax  relief. The Liberal Democrats had been in support of abolishing all  higher tax rate relief, capping relief at the basic rate of income tax.

The environment

A green investment bank will be set up, as well as green financial  products to encourage individuals and businesses to invest in clean  energy supplies.

The energy markets are to be reformed, which may mean some state  intervention.

The government is to press ahead with a high-speed rail network but  will reject plans for additional runways at Gatwick and Stansted.

A national planning statement will be drawn up to allow a process for replacing existing nuclear power stations with new ones, although  Liberal Democrat MPs will be allowed to abstain on any vote on the  plans.

Coalition unveils plans to cut red tape and encourage small businesses

The new coalition government has unveiled a more comprehensive summary of its "programme for government", which contains many plans which could benefit the UK's small businesses.

Understandably light on numbers prior to the emergency budget on June 22nd, some of the main proposals (which can be downloaded here) are as follows.

New government business and tax proposals

• Major reforms to the banking system, ensuring that SMEs have real access to credit via a major new loan guarantee programme.
• Plans to slash red tape via a new 'one-in, one-out' rule which will ensure that no new regulation can be introduced without another being cut by a larger amount.
• The controversial IR35 rules will be reviewed as part of an overall review of small business taxation.
• The government will find a practical way to ensure that small business rate relief is automatic.
• Reduction in the number of forms required to register a new business, and a move towards a ‘one-click’ registration model.
• The public will be given the opportunity to challenge the worst regulations.
• Corporation tax will be reformed in its entirety - including headline rates which will be reduced.
• An aspiration for one quarter of all government contracts to be awarded to SMEs.
• An aspiration to become the leading hi-tech exporter in Europe.
• The personal allowance will be increased in stages to benefit the lower paid in particular.
• As predicted, non-business CGT rates are likely to be increased more in line with income tax bands.
• Generous exemptions to the new CGT rates will be made to encourage entrepreneurs.
• The non-dom tax rules for individuals will be reviewed.
• Tax avoidance will be a key priority for the coalition.
• An end to the 'gold plating' of EU rules, so UK businesses are not disadvantaged compared to their EU competitors.

 

Cutting the UK's budget deficit the key priority for small business  owners

Two major surveys show that small businesses are overwhelmingly  in favour of making tackling the UK's budget deficit the key priority  for the new government.

In a poll carried out by the Federation of Small Businesses, 93% said that the coalition government must outline robust plans for reducing the deficit.

Two-thirds (66%) of respondents said that a cut in fuel duty would  help growth and 36 per cent would like to see an increase in the  personal tax threshold.

Just over 40 per cent (41%) of respondents said that the extension to the Time to Pay scheme announced in the last budget would have a  positive impact on business prospects and legislation to force big  businesses to pay invoices within 30 days would provide a boost for 46  per cent of respondents.

In another survey, carried out by the Forum of Private Businesses, when asked what the new  Government's immediate priorities should be, 77% of respondents to the  Forum's latest Referendum ballot listed repayment of the national debt.

Stronger regulation of utility companies and banks was the next most  popular priority listed by small business owners, finding favour with  62% of those surveyed. This was closely followed by simplification of  the tax system, on 61%.

The Chancellor will deliver his emergency budget on 22nd June, and has also announced the creation of an Office for  Budget Responsibility, an independent body which will look at the state  of public finances.

Minimum wage to rise by 2.2 per cent

The government has announced the national minimum wage is to rise by 2.2%.  From 1 October 2010, the hourly adult rate will increase from  £5.80 to £5.93. The news was revealed in documents published following the Budget.

John Cridland, the deputy director general of the CBI, said: "This  moderate increase recognises that many businesses are struggling, and helps protect jobs at a time of rising unemployment. The  inflation-busting rise some unions had called for would have hit firms  hard and put many lower paid workers on the dole."

Other business groups, however, were not as welcoming.

Adam Marshall, director of policy and external affairs at the British Chambers of Commerce (BCC), said: "The national minimum wage increase  took some of the shine off a Budget that had small and medium-sized  businesses at its heart.

"It is astounding that the government would increase the minimum wage by 2.2% at a time when private sector wages are virtually flat, and companies across the country are still making tough choices to keep as many people in employment as possible."

The British Retail Consortium (BRC) described the increase as  "irresponsible".  Stephen Robertson, the BRC's director general, said: "A measure of  this magnitude should have been in the Budget speech. It's at odds with  government promises of prudence and public sector freezes and will  damage retailers' ability to maintain and create jobs. How can an  increase virtually double last year's be justified? Economic conditions  were far weaker in the run up to this year's decision than twelve months earlier."

Once the economy returns to stability, the BRC wants the Low Pay Commission (LPC) to establish a more predictable relationship between the  rate and average earnings movements.  This would mean that the LPC would provide a longer-term outlook for  the minimum wage, offering businesses greater certainty about the  direction of future costs, the BRC said.

The new rates, which will come into force on 1 October 2010 will  be: £5.93 per hour for workers aged 21 and over (a 2.2% increase on the current £5.80 rate); £4.92 per hour for 18-20 year olds (a 1.9% increase on the current £4.83 rate); and £3.64 per hour for  16-17 year olds (a 2% increase on the current £3.57 rate).

The government also announced that  it accepted the LPC’s recommendation to introduce an apprentice  minimum wage of £2.50 per hour.  The new rate will apply to those  apprentices who are under 19 or those that are aged 19 and over but in  the first year of their apprenticeship.

Business Minister, Pat McFadden  said: “The Low Pay Commission, which includes employers and trade union  representatives, carefully considered the latest economic data and  evidence before making its recommendations, balancing the needs of  businesses and workers.

“The recommendations provide a  welcome increase for workers, but the economy is still fragile and  government must continue to support the recovery in the months ahead.

“I’m also glad to see the LPC  recognising the significant contribution that apprentices make to the  economy. I hope this will encourage more people to take advantage of  this opportunity and invest in their skills by taking up an  apprenticeship."

PCG welcomes Tory review of "unfair" IR35 tax legislation

A professional association for freelancers has welcomed the Conservatives' proposals to overhaul "unfair" IR35 legislation and  other small business taxation rules.

Simon McVicker,  head of public affairs at the Professional Contractors' Group (PCG),  told BAD News: "It would take a lot of burden off people who are always  looking over their shoulder to see whether they're going to be open to a tax investigation. They have to act in a certain way to avoid it, and  it's a terrible stress for a lot of them."

Mr McVicker explained  that IR35 is an unfair piece of tax legislation that penalises  self-employed contractors working for one client. He said: "IR35 was  brought in by the Government to stop false self-employment. If people  are acting in a freelance or contractual way when they've got one  contract with one client, often IR35 would catch them out and they would be made to pay NICs (National Insurance Contributions) and tax like an  employed person but they would get no benefits."

"Our argument is  that it's an unfair piece of legislation because people genuinely do  work on contracts for one client, for example in the IT industry where  many people only work for one client. HMRC (HM Revenue & Customs)  has quite often believed that these people are acting as permanent  employees and should be paying more tax."

His comments come after  Shadow Business Minister Mark Prisk announced that the Conservatives  would overhaul the tax regime for small firms and the self-employed if  they get into power.

Mr Prisk told The Telegraph: "For  the past 13 years, Labour has constantly meddled with the tax rules for  freelancers and self-employed. IR35 has especially proved to be  over-complex, uncertain and often unfair. At a time when Britain should  be open for business, Gordon Brown has made it harder to be  self-employed."

More reaction from the PCG is available on their website.

Read the full interview with  Mark Prisk on The Telegraph website.

More  information on IR35 legislation is available on the HMRC website.

Budget 2010: an overview

"This will be a Budget to secure the recovery, tackle borrowing and  invest in our industrial future" was how the Chancellor, Alistair  Darling summed up the last Budget before the next general election.

It was also a fair summary of the problems he, and the country, face. On one hand a need to reduce a ballooning deficit and on the other a need to nurture an economic recuperation from one of the worst  downturns in generations.

Mr Darling was partially buoyed by figures revealing that government  borrowing will not be quite as mountainous as earlier predicted: for  this year £167 billion, £11 billion down on previous estimates. For  future years, the Chancellor predicted borrowing would stand at £163  billion in 2011, £131 billion in 2011/2012 and £110 billion in 2013/14,  before reaching £74 billion in 2014/15. But he also pruned his growth  forecast for next year, down to between 3% and 3.5%.

The Budget debate was always likely to be dominated by the question  of when to cut spending and by how much. As expected, Mr Darling held back from implementing swingeing  spending cuts this year. "I believe that to start cutting now risks  derailing the recovery," he said. Although he did promise more drastic  action in the spending settlement for the years after 2011. As many  believe, it will be the fiscal decisions taken over the next year that  will have the weightiest bearing on the economy.

Not heavily loaded with new announcements - most tax measures had  been set out in the pre-Budget Report last year - the Budget did,  however, offer one eye-catching change: the decision to raise the stamp  duty land tax threshold for first-time buyers to £250,000. A rise that  is to be funded by an increase in the stamp duty land tax charge for  homes worth £1 million to 5 per cent.

There were, though, a number of announcements designed to help long  suffering smaller businesses. The annual investment allowance is  doubling to £100,000; business rates' relief will effectively scrap  rates bills for 345,000 firms for a year; entrepreneurs will benefit  from a raising of the threshold for reduced relief on capital gains tax; and the fuel duty increase is to be staggered, with a penny rise in  April and October and the remainder in January 2011.

NICs, however, will still be climbing by 1 per cent as from April  2011 to the disappointment of many.

Business funding came under the spotlight too. The partly state-owned banks will have a duty to boost their lending to small firms in  particular, and a new national investment corporation will be  streamlining investment and financial help for SMEs.

The full extent of the spending cuts that are necessary to address  the deficit may still be in the future. The exact rate of GDP growth  lies ahead too. How far the Budget goes towards securing the recovery,  tackling borrowing and investing in industry, time also will tell.

Budget offers some key measures for small firms, says FPB

A leading business group has identified a number of announcements in  the Budget that will help smaller firms. The Forum of Private Business (FPB), while expressing concern over  the lack of a long-term strategy, believed that a number of Budget  measures will come as a benefit to smaller firms.

The four-year extension to HMRC's Time to Pay scheme for businesses  struggling to meet tax bills, the implementation of a five-day target for invoice payments by public bodies and the creation of a  credit adjudication service with powers to overturn loan refusals were particularly noteworthy for the FPB.

In a recent poll of FPB's members, the Time to Pay scheme emerged as the most popular government measure.  The 'payment in 10 days' commitment by public bodies was the second  most popular.

With firms still finding it difficult to gain access to business  finance, the FPB has been calling for loan applications to be decided on a decentralised, case-by-case basis and said it hoped that the new  adjudication service will help.

Phil Orford, the FPB's chief executive, commented: "We had asked the  Chancellor to clarify and extend the Time to Pay scheme as it can be a  lifeline for many small firms struggling with cash flow difficulties, so its extension for another four or five years will be welcomed.  Additionally, the creation of a dedicated helpline for second-time  applicants should help to clear up some of the confusion we've  highlighted over whether or not Time to Pay is a 'once only' option."

Mr Orford also welcomed the target set central government departments of paying 80 per cent of supplier invoices within five days, along with the intention to increase the amount of government work being awarded  to small firms by 15 per cent.

The FPB insisted on the importance of a dialogue between the banks  and businesses in order to make sure firms have access to growth  capital.  Mr Orford continued: "If it is set up and managed properly, the  Credit Adjudication Service should also act as a valuable last resort  for the many business owners who feel they have been unfairly denied  loans and overdrafts."

Other aspects of the Budget which the FPB saw as positive included  the new funds for lending to small businesses, the doubling of  investment allowance to £100,000 and the increase in the lower threshold for capital gains tax and entrepreneurs' relief.

But the FPB was critical of Darling's decision to press ahead with planned rises in national insurance contributions and fuel  duty.

Mr Orford said: "It was hugely disappointing to hear that the  increase in NICs will still go ahead, considering the bureaucratic  burden small businesses face in administering its threshold.

"Small businesses will also have been dismayed by the decision to  plough ahead with increases in fuel duty and the Chancellor's failure to acknowledge both the regulatory burden smaller businesses face and the  urgent need for a re-think of workplace legislation."

Budget 2010: an outline summary

Business and personal taxes

• Stamp duty land tax threshold for first-time buyers to rise to  £250,000 and be funded by a stamp duty land tax charge of 5%  on residential property sales worth £1 million or more

• Fuel duty increase, planned for April, to be phased at 1p in April, followed by 1p in October and the remainder in January 2011

• National Insurance Contributions increase of 1% confirmed for April 2011, although threshold for NI payments is to rise so that  nobody earning less than £20,000 will face extra charges

• The top rate of income tax at 50 per cent for those earning £150,000  or more is confirmed for April 2010, along with the gradual removal of  personal allowances for those earning over £100,000

• No change to VAT

• Inheritance tax threshold to be frozen at £325,000 for the next four  years

• Business rates to be cut from October for one year, meaning   345,000 small firms will pay no business rates at all

• Annual investment allowance for small firms doubled to £100,000

• Threshold for relief on capital gains tax for entrepreneurs to be  doubled. No increase in capital gains tax rates

• Duty on cider to increase by 10% from 29 March; wine, beer  and spirits by 2% from 29 March

Business support

• State-owned banks (RBS and Lloyds) to provide £105 billion of loans,  £41 billion to SMEs

• A new credit adjudicator to fast track complaints from small firms  that believe they have been unfairly refused credit

• New national investment corporation - UK Finance for Growth - to  oversee government's £4 billion portfolio of business support funds

• New growth capital  worth £500 million to help fast-growing SMEs

• Plans to increase by 15% the number of central government  contracts that are awarded to SMEs

• Time to pay scheme, which allows firms to agree extra timetables for  settling tax bills, to be extended for whole of the next parliament

Infrastructure and environment

• £100 million set aside for road repairs and £285 million for  improvements to motorways

• Investment bank to be set up, controlling £2 billion of equity, to  support investment in green projects and industries

Innovation, skills and training

• A £35 million University Enterprise Capital Fund to strengthen links  between university innovation and the commercial development of those  innovations by spin-off companies

• One-off £270 million payment to universities to help provide 20,000  more places for students studying science, mathematics and engineering

Economy

• The economy contracted by 6% over the recession.

• The Chancellor predicted that growth for 2010 would be between 1 per  cent and 1.5%, in line with forecasts, but revised his  prediction for 2011 down to a growth rate of between 3% and 3.5%

• The government's target figure for inflation is to remain at 2%

Government finances

• Better than expected tax receipts and spending in line with forecasts meant the Chancellor announced government borrowing will be £167 billion this year, £11 billion less than earlier  estimates

• For future years, the Chancellor predicted borrowing would stand at  £163 billion in 2011, £131 billion in 2011/2012 and £110 billion in  2013/14, before reaching £74 billion in 2014/15

• The reduction in the budget deficit will halve - from 11.8%  of GDP to 5.2% - over a four-year period

• The Chancellor added that the structural deficit will fall by  two-thirds by the end of the next parliament

Government spending

• Public sector pay settlements to be held at a maximum of 1 per cent  for two years from 2011

• Government departments to make £11 billion worth of efficiency  savings

• The Chancellor said that spending would increase in real terms by 2.2 per cent next year as already planned but that the next spending  settlement, from 2011 onwards, would be the "toughest for decades".

Employment

• The amount of time that the over-65s have to work in order to qualify for tax credits is to be reduced

• Youth employment guarantee scheme to ensure that anyone aged under 24 will get either a job or training once they have been  unemployed for six months, is to be extended to March 2012

Savings

• Plans are in place to ensure that up to 1 million more  people will have access to basic bank accounts in the next five years

• The limits on ISAs are to increase annually in line with inflation

Tax credits and allowances

• Parents of one- and two-year-old children to receive an increase of  £4 a week in child tax credits from 2012

• Pensioners' higher winter fuel payments of £250 and £400 for the  over-80s to remain for another year

Conservatives will scrap Business Link if they win election

Shadow Minister for Business and Enterprise Mark Prisk's announcement that the Conservatives will scrap Business Link if they win the general election has prompted mixed reactions from the business community.

Mr Prisk told The Sunday Times  he believes regional Business Links are "failing in their task" and wants enterprise agencies to take a bigger role in helping small businesses.

However, some people have questioned the efficacy of enterprise agencies as a replacement for Business Link. Len Tondel, chairman of the Home Business Alliance (HBA), told BAD News: "Although Mark Prisk suggests that enterprise agencies inherit Business Link's activities, enterprise agencies too have variable results. There are good and bad examples from both sectors. The wealth of experience and the loyalty of Business Link's advisers, who are independent professionals and not civil servants, is too precious to be cast aside, let alone suffer replacement by websites and self-centred local interests."

Jo Reese, leadership and management adviser at Business Link for the West of England, Gloucestershire and Wiltshire, agrees that Business Link provides a valuable service and that the welfare of small businesses should be at the heart of any decision to change business support facilities. She said: "You don't reinvent the wheel just for the sake of it. Sometimes the shape of the wheel might need to be changed but if your key priority is to build the economy through the sheer number of SMEs we have in this country then it's about the support they need to help them grow and develop and become stronger and more competitive. We're focused on what we can do to help our local economy."

Matthew Goodman, policy representative at the Forum of Private Business (FPB), believes that the continuity of support for small firms is the most important issue. He said: "We have some concerns about this, primarily because we believe there should be continuity of business support regardless of what colour the new Government is. The continuity of support is the most important thing."

However, he added that there is a finite amount of support Business Link can provide, which it should recognise. "Business Link does help," he said. "But I think it's important that it knows where to stop and to hand over businesses to an organisation that has better expertise."

The proposal to scrap the service altogether has been welcomed in some quarters, with a move towards more private sector business support being advocated.

 To read Mark Prisk's full interview in The Sunday Times go to:
http://business.timesonline.co.uk/tol/business/entrepreneur/sme/article7026236.ece

UK tax regime must change, FSB warns, as unemployment figures due to rise

FSB-ICM research shows that small businesses are keen to grow but need the right conditions to employ more people to help strengthen economic recovery

More than half of small businesses surveyed by the FSB-ICM January survey panel say UK taxes have prevented them from taking on more staff, as employment statistics due tomorrow are expected to show a rise in unemployment.

Businesses in the South East feel particularly strongly, with 64 per cent saying taxes have a negative impact, closely followed by the North West at 60 per cent and London at 59 per cent. Across the country the figure is 58 per cent. Concerned that the temporary boost to employment figures provided by the Christmas period is coming to an end, the FSB is stepping up its call to Government to freeze National Insurance Contributions and provide a National Insurance rebate for small businesses with fewer than 50 staff that take on more employees during 2010-11.

In late 2009, the FSB-ICM ‘Voice of Small Business' Annual Survey showed that 19 per cent of small businesses would take on new staff over the next 12 months in order to achieve business objectives, with London (27%), Northern Ireland (25%) and the North East (23%) the most likely to do so.

John Wright, National Chairman of the Federation of Small Businesses said:

"The January employment figures showed a welcome fall in the number of people out of work but we fear the severity of the recession will begin to be evident when the latest figures are released. What the UK economy needs is real action to get more people into work, especially under-25s, who make up a large proportion of those currently unemployed.”

"A cut in National Insurance Contributions would encourage small businesses to take on more staff and grow their business. Small firms can help to strengthen economic recovery if they are given a chance to grow and flourish, but they will need a helping hand.

New VAT rules could be a burden for some UK firms

A major change to the way that VAT is charged across the EU could impose extra admin costs on UK firms.

According to Douglas Gordon, chairman of the Chartered Institute of Taxation’s VAT and indirect taxes subcommittee, the new rules “will add to the administrative burden on many businesses”€�.

The new rules, which came into force on 1 January, affect the VAT taxation of cross-border services within the EU.

Under the change, almost all services that are supplied to a business in another EU state are now treated as supplied in the place where the customer is established.

The changes were prompted by the number of services that are being provided across national borders and are aimed at making it fairer for service businesses to compete with each other.

Practically, it means that firms that trade across EU borders must put together lists each quarter setting out details of the services that have been supplied to VAT-registered EU customers. Under the old rules, only customers to whom goods were supplied had to be listed.

The concern, however, is that the changes will create extra paperwork and add to administrative costs, especially for smaller firms.

Mr Gordon went on to say: The introduction of a general rule that the place of supply of services is where consumption takes place is sensible. In the process we have lost a number of areas of uncertainty, which will deliver significant benefits?�

But he added: “However, I fear that the changes will add to the administrative burden on many businesses. This is because the shift in the general rule means that national governments need statistical data on cross-border transactions in order to police them.

“The existing Intrastat system is therefore being extended from goods to services, with a consequential increase in the administrative burden, and many businesses being brought into the system for the first time.

Fathers to be entitled to six months of paternity leave

A new rule will allow mothers to swap a substantial part of their maternity leave with the father.  The government has confirmed that the planned change will come into force in April 2011.

At the moment the fathers of new babies can take two weeks’ paid paternity leave.  Under the new regulations, however, parents will have the option of dividing maternity leave between them.

Fathers will be granted the legal right to take up the final three months of paid maternity leave due the mother provided she returns to work.

They would be paid the statutory maternity pay of £123 a week for the three-month period.

They will also have the chance to take a further three months of unpaid leave, bringing the total amount of parental time-off for couples of newborn children to 12 months.

The intention is to have the legislation in place before the coming general election. The changes will apply to parents of children due on or after 3 April 2011.

Harriet Harman, the Women and Equalities Minister, said: “This gives families radically more choice and flexibility in how they balance work and care of children, and enables fathers to play a bigger part in bringing up their children.

“We’ve doubled maternity leave; doubled maternity pay; introduced paternity leave; more than doubled good quality affordable childcare places; and introduced right to request flexible working.”€�

It is thought that between 4 per cent and 8 per cent of those eligible for the new leave will take it, but that only 1 per cent of small firms will be affected.

Katja Hall, the CBI’s director of employment policy, commented: “Businesses do their best to support flexible working styles, and this step will give parents more room to adapt childcare to their own situation.

“We recognise the need for greater gender equality when it comes to childcare responsibilities, but the government must get these new rules right and not create a bureaucratic tangle.”

But Stephen Alambritis of the Federation of Small Businesses argued that the new rules would hamper smaller employers: “Small businesses will want all hands to the pump, and having one out of workforce of four means a quarter of your staff being out of action.”

Taxpayers get self-assessment reminder

Self-assessment taxpayers are being reminded that the date for filing their returns is looming.

Returns must be filed online by 31 January or taxpayers could face a late submission penalty charge.

Sarah Walker of HM Revenue and Customs (HMRC) said: “If you haven’t yet sent in your 2008-09 tax return, you need to start thinking about it now.”

Lending to business slumps to lowest levels since records began.

July saw net lending to UK businesses fell to its lowest level since records began, according to the Bank of England's latest 'Trend in Lending' report. The report also reveals that "the availability of finance remains more constrained for smaller companies". Some of the UK's major lenders told the Bank of England that small firms face tougher lending criteria than larger businesses because they are "less well diversified" and unable to withstand adverse conditions.

To read the full 'Trends in Lending' report go to:

http://www.bankofengland.co.uk/publications/other/monetary/TrendsSeptember09.pdf

Demand for employees at its highest for over two years

The jobs market could be returning to its pre-credit crunch levels.

According to the latest Report on Jobs survey from the Recruitment and Employment Confederation (REC), the growth in permanent positions last month was at its fastest since July 2007.

The survey, which covered 14,000 recruitment agencies and consultants, also found that temporary staff placements in December were rising at their fastest pace for 30 months.

Average earnings for permanent employees were on the up too, the second consecutive month in which they have climbed.

Kevin Green, the REC’s chief executive, said: “As we head into 2010, the recovery of the UK jobs market is accelerating. Employer confidence is increasing and vacancies are on the up - with the fastest growth in permanent jobs since July 2007.Temporary and contract placements also rose at the sharpest pace for thirty months which underlines the crucial role that flexible working models will play in helping job-seekers back into work.”

However, Mr Green went on to point out that, despite the increase in demand for both temporary and permanent staff, the jobs market looks as if it will stay very competitive, particularly for younger people.

He added that it was essential that the government’s pledge to invest over £1 billion in creating 400,000 new youth job and training opportunities is met, and that the government ensures that new EU regulations on agency work do not curb the ability of employers to create jobs.

Pre-Budget Report 2009: business tax

To the relief of smaller firms, the Chancellor has deferred the planned rise in the rate of small companies’ corporation tax.

The 1 per cent rise, from 21 to 22 per cent, has been held over for another year, remaining at 21 per cent in 2010/11.

The business rates relief scheme for empty properties, which was introduced in the 2008 pre-Budget Report, has been extended.

Empty properties with rateable values up to £15,000 were exempt from business rates under the scheme in 2009/10. That relief has now been granted for an extra year. For 2010/11, empty properties with a rateable value below £18,000 will not be liable to business rates.

In a green tax measure, electric cars are to be exempt from company car tax for five years and there is to be a 100 per cent first year capital allowance for electric vans, both from April 2010.

As from 2012, there are to be changes to company car tax. The CO2 emission thresholds for CCT bands will be moved down by 5g CO2 per km, while the graduated table of CCT bands will include a new 10 per cent band for cars emitting up to 99g CO2 per km.

The fuel benefit charge multiplier will rise from £16,900 to £18,000 from April 2010.

To boost innovation, the government is to introduce a patent box as from April 2013, which is a reduced rate of corporation tax on income from patents

Pre-Budget Report 2009: business support

The Chancellor used the opportunity of the pre-Budget Report to commit the government to providing support for businesses during the economic recovery.

Mr Darling announced that the Business Payment Support Service, which enables firms that are facing temporary financial difficulties to arrange with HMRC for more time to settle their tax bills, will continue indefinitely.

So far some 160,000 businesses have used the service to defer paying £4 billion of tax, of which £3 billion has since been repaid.

Another government initiative aimed at helping firms that are struggling to secure finance, the Enterprise Finance Guarantee, is also to be extended, in this case for another 12 months.

The scheme, which uses public money to guarantee business loans granted by the banks, is targeted at firms with a turnover of less than £25 million. Currently, 9,000 SMEs have applied to use the EFG, and it is hoped the extension of the programme will introduce an additional £500 million in loan funding.

The Rowlands Review identified a significant gap in SME growth funding. Many SMEs have funding requirements that are too small to attract venture capital or too large for the banks.

Taking up the Review’s recommendations, the government is to set up a Growth Capital Fund which will offer finance to small, fast-growing firms that are looking for investment sums of between £2 million and £10 million. The Fund would involve some £500 million of capital supplied by investment banks and other financial institutions.

To boost investment in innovative products and ideas, the government is to introduce a patent box as from April 2013, which will see a reduced rate of corporation tax on income from patents.

An extra £150 million of investment is to go into supporting low carbon technologies..

Pre-Budget Report 2009: an overview

The Chancellor, Alistair Darling introduced a pre-election pre-Budget Report to the Commons that would, he said, “build a strong economy and a fair society”€�.

He went on to say that he wished to take steps to “support the economy, businesses and households”€� in order to provide a “platform for growth and opportunity”€�.

Mr Darling faces the twin dilemmas of a soaring public finance deficit and a recession-driven drop in government income.

To cut spending too severely runs the risk of choking off a recovery that has been bolstered by government investment in public services and is still tentative. To introduce significant tax rises too soon poses a similar danger.

Before getting into the detail of his plans, Mr Darling conceded that the recession has had a deeper impact on the economy than he previously anticipated.  The economy, he said, will contract by 4.75 per cent this year, not 3.5 per cent, returning to growth by the fourth quarter. But he stuck to his forecast for growth rates of between 1 per cent and 1.5 per cent for next year and of 3.5 per cent in 2011/12.

Consumer inflation is set to rise to 3 per cent early next year before falling back to 1.5 per cent by the end of 2010.

Public finances, too, have suffered a little more than was predicted back in the April Budget. Government borrowing is forecast to reach £178 billion this year, £3 billion up on Mr Darling’s April estimate, and £176 billion in 2010 before falling further to £140 billion in 2011, to £96 billion in 2013 and to £82 billion in 2014.

The government has committed itself to halving the budget deficit in four years.

This will inevitably entail both spending cuts and tax rises, and Mr Darling duly addressed both, although much of the discomfort has been deferred.

The most eye-catching announcements were plans to raise NICs by 0.5 per cent in April 2011 - that’s in addition to the 0.5 per cent already pencilled in – and to impose a 1 per cent cap for two years on public sector pay rises also in 2011.

There are changes to income tax as well: the point at which taxpayers are charged the higher, 40 per cent rate of income tax is to be frozen in 2012/13 at its 2011/12 level, which means more people will be liable.

Bankers’ bonuses are to see a 50 per cent levy on any payment over £25,000, the money generated going to tackling youth unemployment.

The rate at which public spending grows is set to slow each year between 2011 and 2015, but Mr Darling did not detail exactly where the axe will fall since the comprehensive spending review will not now be held until after the general election.

Small businesses received some welcome news. The planned increase in the small companies’ rate of corporation tax, from 21 per cent to 22 per cent, has been put back another year.

VAT returns to a standard rate of 17.5 per cent (though no higher as some feared).

The business rates relief scheme for empty properties, which was introduced in the 2008 pre-Budget Report, has been extended. For 2010/11, empty properties with a rateable value below £18,000 will not be liable to business rates.

Businesses that find themselves struggling to pay VAT, corporation tax, PAYE, income tax and NICs will still be able to make use of HMRC’s Business Payment Support Service. This means that firms facing temporary financial problems can negotiate spreading the payment of tax bills over a period of time they can afford.

The Chancellor also proposed a package of measures to improve the levels of funding available to cash-starved firms: the Enterprise Finance Guarantee is to get a further 12 months' lease of life and there are plans to establish a special growth capital fund for SMEs.

The issue is: are the proposed tax rises enough to protect spending as well as to cut the budget deficit? Time will tell whether Mr Darling’s 2009 pre-Budget Report speeds the slow economic recovery.

Firms finding it harder than ever to secure finance

Increasing numbers of small and medium-sized businesses are struggling to access the finance they need in order to grow.

In fact, more SMEs are now reporting that the availability of credit and loans is a major problem than there were just three months ago.

This is despite the £200 billion that the Bank of England has pumped into the economy, by way of its quantitative easing programme, in an effort to boost commercial lending levels.

Those were among the findings of the latest Monthly Business Survey published by the British Chambers of Commerce (BCC).

A third (33 per cent) of those firms that responded to the survey said that accessing finance has been more difficult over the last three months. At the end of the second quarter, only 20 per cent of businesses thought that credit availability had deteriorated.

What’s more, the proportion of firms that have experienced easier access to finance halved to just 3 per cent, down from 6 per cent in the previous survey.

Lending, though, was not seen as the biggest obstacle to growth by the majority of the 400 firms polled. Almost two-thirds (64 per cent) cited weak customer demand as the most likely barrier to expansion over the coming 12 months. Access to finance registered 18 per cent, regulatory issues 10 per cent, and exchange rates and input costs both 4 per cent.

David Frost, the BCC’s director general, said: “Our latest survey results show that the biggest issue facing British businesses is still demand for products and services. This means that any economic recovery is still fragile.”

Nevertheless, Mr Frost added that it was clear that the huge sums that have been injected into the financial system by quantitative easing are still not reaching SMEs on the scale required for businesses to invest for future success.

Mr Frost concluded: “The pre-Budget Report must include measures that encourage companies to invest and improve confidence. Announcing that 2011’s planned increase in National Insurance contributions will be scrapped would be a good start.”

Prompt payment will help smaller businesses

The government is urging very large companies to make sure that smaller suppliers are paid on time. According to new figures, 85 per cent of central government invoices are now paid within ten days, a rise of 24 per cent since November 2008.

The wider public sector has also seen improvements in payment times. The Forum of Private Business (FPB) reported that the average payment time for local authorities in England is now 18 days, with 42 per cent of all invoices paid within ten days.

However, Lord Davies, the Minister for Trade, Investment and Small Business, called on the private sector to make even more efforts to pay smaller firms by the agreed date, particularly in the current economic climate.  So far 22 FTSE 100 companies have signed up to the government’s Prompt Payment Code, launched in December 2008.

The minister said: “Late payment creates uncertainty in the supply chain and carries a significant cost to UK business. In 2009 it is anticipated that UK business will pay approximately £180 million in interest on overdue payments. That’s £180 million of potential investment lost. Being a Code signatory sends a very simple but very powerful message - we pay on time.”

An analysis carried out by Experian, the credit referencing organisation, indicated that invoices are now indeed being settled slightly earlier. On average firms took 20.99 days over the agreed date to pay their bills last month compared with 21.54 days in September and with 23.20 days in October of last year.

But the research also suggested that suppliers themselves can help speed up payments by invoicing correctly and on time.

Matthew Goodman, the FPB’s policy representative, commented: “Keeping cash flowing is the biggest concern for many small- and medium-sized businesses, and, logically, best practice should start at the top of the supply chain. That is why we believe that the FTSE 250 should demonstrate their leadership in the market and become signatories to the Prompt Payment Code.”€�

Mr Goodman added, though, that sometimes busy small businesses experience problems with the basics of good financial housekeeping, such as checking out potential customers, invoicing on time and chasing payments, a failing that can push up costs and lead to a greater reliance on finance.

He concluded: “That’s why we are working to make sure that there is protection and better training out there for businesses struggling to keep track of their cash-flow.”

Twitter and Facebook aid small firms

It is the 21st Century equivalent of word of mouth.

From "mom and pop" diners to cupcake shops to technology start-ups, small business owners across America have been thrown an unexpected lifeline in the midst of the recession by social networking sites.

Companies that have jumped on the Twitter and Facebook bandwagon are reporting a surge in customers while others struggle.

With minimal marketing budgets available to many small businesses, social networking sites offer a quick and, more importantly, free means of promoting their wares to a global audience.

In the face of stiff competition and a global economic downturn, it is a route more and more companies are going down.  ...read more

Firms get VAT payment change reminder

Businesses are being reminded that HM Revenue and Customs (HMRC) has changed its account details for VAT payments. As a result VAT payments to HMRC need to be made to a new bank sort code and account number.

Anyone paying by BACS Direct, by internet or telephone banking or by CHAPS can find the new bank account number and sort code at http://www.hmrc.gov.uk/payinghmrc/vat.htm

Businesses that have stored templates or transactions when using online banking to make VAT payments may now need to update or replace the old details with the new code and number.

HMRC has said that, although it has been working closely with the banks and building societies to make sure their systems are updated to reflect the new VAT account details, not all of them will have been able to make the changes immediately.

For a short period, therefore, businesses may need to continue to use the old Bank of England account details.  However, HMRC has reassured taxpayers that, if they do need to use the old details, the payments will still be received and credited to their VAT accounts.

Letters with details of the changes are being sent out to VAT registered businesses.

Limited company directors can provide ‘service address’ to Companies House

A number of Companies Act changes come into play on 1st October 2009. One of the more significant changes is to allow limited company directors to keep their residential address confidential by providing a business or 'service' address for display on the public register.

From 1st October 2009, every director must provide Companies House with both their residential address and a service address for each directorship they currently hold.

For the 'service address', a director can choose any address (including the registered company office address). The service address is where documents can be sent, so it must be a 'real' address, not a PO Box or a DX number.

The residential addresses of company directors will subsequently be only available to Government bodies such as HMRC, and possibly Credit Reference agencies.

What does the introduction of service address mean for directors?

Directors will be able to file a service address for the public record. This address can be the same as the residential address, or the registered office address, or it can be somewhere different. This will be introduced from 1st October 2009.

Will directors still have to provide their residential address to Companies House?

Yes. Every director must provide both their usual residential address and, for each directorship, a service address. The service address will be on the public record; the residential address will be protected information. A director may choose to use his residential address as his service address; in which case the fact that the two addresses are the same will not be apparent form the public record.

You should read further relevant FAQs related to directors service addresses at the Companies House site.

 Change back to old VAT rate should be ‘delayed'

The government should consider switching the date on which the standard rate of VAT moves from 15 per cent to its former level of 17.5 per cent. 

The Chancellor’s intention is for the rate to revert to 17.5 per cent on 1 January 2010.

However, the Association of Chartered Certified Accountants (ACCA) has called on the Chancellor to consider extending the VAT cut into early 2010.

The ACCA said that it believed that the planned switchover date could have an adverse impact on businesses as it falls at the end of the calendar year when many small businesses are busy.

For this reason, the government should look at pushing the date further in 2010, perhaps as late as February, and should make any announcements as soon as possible rather than leave them until the autumn pre-Budget report.

Chas Roy-Chowdhury, head of taxation at ACCA, says: “This potential VAT changeover date needs to be moved well into the New Year, ideally February.

“We have to be mindful that SMEs will be dealing with tax returns at the end of the tax year and payroll returns will come around in April. It all just goes to show how relentless planning, finance and tax issues are for SMEs.

Prepare for Companies House changes or risk bad debt, expert warns

Businesses must be aware of the changes due to come into force under the Companies Act 2006 or risk taking on bad debt and credit risks, an industry expert has warned.

Under the Act, from 1 October 2009 every director must provide Companies House with both a service address, accessible to the public, and a residential address that will be protected. Previously, the residential address was openly available but now consent is required to access it.

Neil Munroe, external affairs director for credit check firm Equifax, warns that any business offering trade credit must be aware of the change and ensure they have consent to check the residential address.

He told BAD News: "In small businesses there's a common belief that the business is only as good as the individual who runs it. It's important to understand the people behind the business. We suggest that on the application form for businesses applying for credit, there should be a request for consent to check the private information of the director."

He added: "It's a case of being pro-active with a business' details. You have to get consent to check the private address but it's best practice. If not, there's a possibility that bad debt could creep through, though it does depend on the individual circumstances. Businesses won't have the full picture and could give credit to high risks."

For more information on the Companies Act 2006 go to:
http://www.companieshouse.gov.uk/companiesAct/implementations/oct2009.shtml#directorsserviceaddresses

Bad businesses could be saved by sudden credit increase, warns Dragon

Dragon's Den star Peter Jones has warned that an improvement to the flow of credit to small businesses could lead to some undeserving firms being saved from closure. Speaking as part of Small Business Week 2009, he conceded that businesses can't survive without credit but said that the UK has "got carried away on the self-fulfilling cycle of increased debt". He also went on to defend the banks' lack of lending, saying that any business would currently be "cautious" when giving out credit.

To read more on this story go to:
http://www.accountancyage.com/accountancyage/news/2250015/credit-boom-save-bad-businesses

Cap business rates, urges BRC

The Government should cap business rate increases at 5% rather than the planned 12.5%, the British Retail Consortium (BRC) has urged. In a response to the Department for Communities and Local Government's consultation on transitional arrangements for England over the next five years, the BRC applauded the Government's plans to cap increases but warned that the caps are too high. It will allow rises up to 12.5% for the first year and then increases of up to 25% in the fourth and fifth years.

For more on this story go to:
http://www.brc.org.uk/details04.asp?id=1628

HMRC and Companies House team up on online filing

M Revenue and Customs (HMRC) and Companies House have announced that they have adopted a common approach to the online filing of company tax returns.

One of the recommendations of the 2006 Carter review of the tax authorities’ online services was that HMRC and Companies House should offer a joint online filing facility.

The Carter review also proposed that businesses and organisations that need to file a company tax return online should do so using eXtensible Business Reporting Language (XBRL), a format that makes reporting of financial information easier, the idea being to reduce the administrative burden for companies.

Companies House has now said that it is in a position to accept Inline XBRL.

The joint announcement added that Companies House will introduce their iXBRL service for unaudited full accounts by the summer of 2010, and then continue to develop their iXBRL capability for all the main types of accounts they receive.

HMRC's new iXBRL service for company tax returns should be available from November 2009, while commercial software that is iXBRL-enabled is due to come on stream in the spring of 2010.

All company returns will need to be submitted online in iXBRL format as from April 2011 for accounting periods ending after 31 March 2010.

The returns include the actual return form, company accounts and tax calculations.

Mark Holden, the director of HMRC’s Carter programme, said: ”[This is] an important step towards our goal of offering a joint filing facility for company accounts and company tax returns as recommended by Lord Carter’s Review of HMRC’s online services.”

Gareth Jones, chief executive of Companies House, added: “This early statement of our intentions will reassure businesses that both HMRC and Companies House are working closely together to align our services to make the filing of accounts as easy as possible for UK companies.”

HMRC denies change on R&D tax relief rules

HM Revenue and Customs has insisted that it has not altered its position on claims for research and development tax credits.

Worries have been expressed by accountancy professionals that firms are finding it tougher to qualify for R&D tax credits because of a possible re-interpretation of the rules.

The concerns have focussed on two areas: claims for R&D costs as they apply to producing prototypes; and the amount of time that employees spend on research and development work.

While the costs involved in designing and testing the viability of prototypes are not excluded by the rules on tax credits, a more intense interpretation of the regulations could make costs for prototypes that are sold to customers rather than scrapped ineligible.

It has also been suggested that HMRC is directing more attention to 100 per cent claims for staff time, questioning whether it is possible for employees to devote all their working day to research and development to the exclusion of elements of non-R&D activities.

However, HMRC has responded by saying that the rules have not been subjected to a more forceful interpretation.

A spokesman said: “HMRC’s role is to help companies obtain the relief that they are entitled to, while policing the rules and boundaries of the R&D schemes fairly. HMRC does not operate any limit on the amount paid out.

The RD tax credit schemes form part of wider government action to encourage UK companies to undertake more R&D. So, the only target we are working towards is to provide support to companies that are undertaking qualifying R&D activity.

“The guidelines specifically exclude production of goods or services from the scope of R&D for tax purposes, and so no relief is available for the costs of production activity. However, other activities carried out alongside the production can qualify.

“So while production costs would be excluded a company might be able to claim, for example, for design work, parts consumed in testing, construction of scale models, computer modelling and other costs.

“What is likely to be disallowed are the costs relating to the building of the finished article in terms of materials and labour. In some cases this could amount to only a small proportion of the total costs, depending on the difficulties encountered in reaching the final product.”

Small businesses get free access to government contracts site

Every small business in the UK is to have free access to thousands of lower value government contracts, it has been announced.

The government’s website www.supply2.gov.uk advertises thousands of public sector procurement opportunities worth up to £100,000.

The site, however, was only available to those firms that paid a yearly subscription fee that could rise to as much as £180.

Last year, the government piloted a three-month no-fee trial for the service. Now the fee is to be dropped indefinitely, allowing small businesses to make use of the details on the site for free.

The move is a step towards delivering on a key recommendation, outlined in the Glover Review of SME participation in public sector procurement, that by the end of 2010 all public sector contracts should be accessible through a single, free online web portal.

Since it was launched in June 2006, www.supply2.gov.uk has published more than 132,000 contracts, many under the value of £100,000, making them particularly relevant to SMEs.

The total value of public sector contracts is £175 billion each year.

Business Minister, Shriti Vadera said: “We want to support small businesses by making it easier to access the thousands of government procurement opportunities that are directly relevant to them.

“This free service is an interim step along the way to introducing a single website for all public sector contracts next year.”

Ian Pearson, Economic Secretary to the Treasury, commented: “Small and medium sized businesses are a crucial part of the UK economy and in these challenging times it is essential that we support them in as many ways as possible.

By introducing a free to use national search service we are helping to create a level playing field on which SMEs can compete with their larger counterparts. This will realise benefits for SMEs, the economy as a whole, and help drive further innovation in public services.”

Debasish Sen, Federation of Small Businesses (FSB) Trade and Industry committee member, added: “The FSB has been working closely with the government to put better policies on procurement in place and we welcome this first step to create a free, national, on-line portal that small firms can use to apply for public sector contracts next year.

“FSB research shows that half of SMEs do not tender for public contracts because the process is too complicated and the contracts are too difficult to find in the first place. Making supply2.gov free to access is a first step in the right direction.”

Value added services, such as daily e-mail alerts, will continue to require a subscription fee.

Tax plans would help high streets recover

The Chancellor has been urged to drop VAT on energy efficient domestic appliances in a scheme that would mirror the car scrappage programme.

The call has come from the British Retail Consortium (BRC) which claimed that the move would not only encourage consumers to switch to more environment friendly goods but would also boost high street business.

Research carried out by the BRC found that dropping VAT on the more energy efficient items would result in a 1.3 million tonne reduction in CO2 emissions by 2020.

That, the BRC said, would be the equivalent of almost 1 per cent of domestic emissions.

Introducing the tax change would involve a loss of £507 million per year in revenue, a figure, however, that represents just two weeks of the across-the-board VAT cut implemented last December.

The BRC wants the Chancellor to include the measure in his pre-Budget Report, arguing in its submission to Mr Darling that it would give consumers a clear signal of the benefits of a switch to the most energy efficient products and could be kick started through time-limited scrappage schemes for those buying Energy Saving Recommended products.

Stephen Robertson, the BRC’s director general, said: The government’s working against its own objectives when it sets targets for reducing carbon emissions while charging full VAT on the efficient products that will move us towards those targets.

Retailers are already doing their bit to cut carbon but homes are responsible for 27 per cent of the nation’s emissions. Helping householders improve their performance has to be the next step.

Mr Robertson added: “Removing VAT and exploring the possibility of a scrappage scheme would do a lot to get old energy and water-squandering appliances out of people's homes.”

Also in its submission, the BRC put its case for dropping the 0.5 per cent increase in employers and employees National Insurance contributions planned for 2011, saying it would save jobs.

Next year's national minimum wage should go up by no more than 1 per cent, business rates need to be kept at an affordable level and Business Rate Supplements must not exceed the likely value of the benefit that businesses will receive, the BRC said.

The government should likewise provide early confirmation that the 40 per cent capital allowance for firms investing over £50,000 in qualifying plant and machinery will be extended beyond the current first-year and apply to a wider range of investment.

Worst of recession over, but recovery will be tough

The economy may be emerging from the depths of the recession but firms will still encounter difficulties on the road to recovery, the British Chambers of Commerce (BCC) has said.

According to the BCC’s latest quarterly economic survey, which took in 5,600 businesses, both the manufacturing and service sectors showed signs of improvement in the months from April to June.

However, they also pointed out that many of the key business indicators used to measure the state of the economy, such as exports, output and employment, were still very weak.

The most encouraging sign, the BCC said, was that turnover confidence during the second quarter of the year climbed to its first positive reading since the third quarter of 2008.

Among manufacturing firms the rise in confidence increased from -38 in the first quarter to 2 in the second. But this was set against bad news on cash-flow which was marooned at -32, the lowest since records began.

The survey revealed that recruitment intentions among firms, though recuperating, were also at a 20-year low, prompting the BCC to keep with its forecast of unemployment running at 3.2 million by the middle of next year.

The BCC used the figures to warn that, without a continued focus on limiting the impact of recession, the economy could drop-off suddenly, shifting towards a W-shaped recession.

David Frost, the BCC’s director general, said: “Our economy is based on confidence, and wealth-creating businesses need to know they will be given the freedom and flexibility to drive the UK out of recession and into a sustainable recovery?"�

Mr Frost argued that the government needs to think long and hard about its policies on taxation and red tape, which threaten to stifle growth and employment, adding that the planned increase in National Insurance contributions is a tax on jobs and should be abandoned.

He said: “Signs of improvement in the economy cannot be an excuse for the government to start increasing business tax as a remedy for the ill health of the nation’s finances. Risking any fragile gains would be a huge mistake."�

David Kern, chief economist at the BCC, commented: “The worst phase of the recession is over, but serious downward pressures persist across all sectors and regions. Recovery is now possible but it is not yet secure.”

Further corrective measures are still needed to support the economy, he continued.

“With cash-flow, capacity utilisation, and price pressures remaining weak, it is important that the short-term policy stance stays expansionary”� Mr Kern said. “Quantitative easing should be pursued aggressively.”

But he also maintained that sustaining any future recovery and preserving Britain’s international credit rating depend on adopting a credible medium-term strategy for improving public finances.

New tax measures could harm business

Increases in business and personal tax pose a risk to the health of the UK economy, a new survey has claimed.

The survey, carried out by the Institute of Directors (IoD) of a thousand of its members, revealed widespread unease at the possible effects of tax proposals set out by the government in the Budget.

The poll asked respondents to rate each one of ten measures, and the Budget package as a whole, on a scale ranging from very positive to very negative as judged by their likely impact on the economy.

Over two-thirds (69 per cent) said they believed that overall the tax measures set out in the Budget were negative or very negative.

The greatest concern centred on the planned 0.5 per cent increase in National Insurance contributions, with 84 per cent rating the policy as negative or very negative.

Personal tax also came in for criticism. The proposed 50 per cent income tax rate for those earning £150,000 or more, the withdrawal of the benefit of personal allowances at incomes of above £100,000 and the restriction of relief for pension contributions all attracted a negative response from three-quarters of those in the poll.

The IoD said the condemnation came despite the fact that the majority of its members run SMEs and do not have six-figure incomes.

Such measures, the IoD contended, send the wrong signals about wealth creation and raise the spectre of high taxes for larger swathes of the population in the future.

Some tax policies, however, did win the backing of business owners.

The extension of the right to carry back to up to £50,000 of trading losses for three years received the support of 77 per cent. And the 40 per cent first year allowances were seen as largely positive by 87 per cent.

Richard Baron, head of taxation at the IoD, said: “The government faces a very difficult fiscal situation, and tax increases may look tempting.

“But in the real world, people who run businesses of all shapes and sizes believe that tax increases will damage the economy. IoD members, the majority of whom are bosses of SMEs, are deeply worried about the increase in NI. New tax burdens can mean redundancies or businesses going under.”

Mr Baron urged the government to re-think its tax-raising plans and to make amendments to the Finance Bill in order to boost business confidence.

More tax help for struggling businesses

Businesses that believe they will make a trading loss in the current tax year can ask HM Revenue and Customs (HMRC) to take the anticipated loss into account as part of any rescheduling of their corporation tax or income tax payments.

The measure, announced in the Budget, is designed to help viable businesses that are facing difficulties paying their tax bills.
It means that businesses will no longer have to wait for the end of their accounting period, which could be months in the future, to include the loss when working out what they have to pay.

The initiative is managed through HMRC’s Business Payment Support Service (BPSS). HMRC pointed out that, to qualify for a rescheduling of tax payments, a business must be unable genuinely to pay immediately and must be heading for a trading loss in the current year.

In a separate measure to support businesses with cash-flow problems, HMRC said that firms that want to reschedule VAT, PAYE and national insurance contributions, or that have already entered into a time to pay arrangement but have found their circumstances have changed for the worse, can also contact the BPSS for a new or revised time to pay arrangement, depending on their circumstances.

The BPSS can be contacted on 0845 302 1435 from 8am to 8pm Monday to Friday and from 8am to 4pm at weekends. Further information is available at: http://www.hmrc.gov.uk/pbr2008/business-payment.htm.

Trade credit insurance scheme starts up

Businesses that are facing cuts in the level of available credit insurance cover can begin to make use of a new government support scheme from 1 May. The government’s trade credit insurance scheme is to provide up to £5 billion of additional insurance to businesses that have suffered reductions in their level of cover.

Under the scheme, which is to run from 1 May until 31 December this year, UK businesses will be able to purchase six months’ ‘top-up’ insurance from the government if credit limits on their UK customers are reduced. The qualifying window will be backdated to include any reductions since 1 April 2009.

Businesses can buy the government-backed insurance to restore cover to the original level or double the amount they are able to obtain from the private sector up to the value of £1 million, whichever is the lower.

Lord Mandelson, the Business Secretary, said: “The government’s Trade Credit Insurance top-up scheme provides a lifeline for businesses to help them address the specific challenges that they are facing as a result of the reduction in trade credit insurance. “This scheme is a targeted transitional measure to help companies secure the cash flow they need and restore confidence throughout supply chains. Risk is shared between government and the private sector, striking the right balance between supporting businesses and protecting taxpayers’ money.”

Businesses that wish to apply for the scheme should contact their trade credit insurer, the Department of Business has advised.

Business rate increase misguided says CBI

The Confederation of British Industry (CBI) has said that the current Retail Price Index (RPI) has highlighted the fact that the impending rise in business rates is misguided. The business rate increase was based on the RPI taken in September 2008, which stood at 5%, and does not take into account the fact that it now stands at 0%. Dr Neil Bentley, director of business environment for the CBI, said: "The Government should freeze business rates for two years, helping companies to survive the recession and saving jobs." The new business rates are due to come into force at the start of the new tax year in April.

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Business start-ups on the increase

Over 4,000 more new businesses were started up during 2008 than the previous year, according to the latest start-up figures from Barclays. Figures from the bank show that 436,600 new firms were established during 2008, compared to 432,300 in 2007. Steve Cooper, local business managing director for Barclays, said: "There could be a number of reasons for the robust start-up market, including individuals made redundant opting for self-employment. We should also remember that there are always opportunities, even in more challenging times."

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