For most small businesses George Osborne’s speech was largely uneventful, with the increased mileage rate and the cut in fuel duty being the highlights for most businesses. However, most small businesses will notice little benefit given the 1% increase in National Insurance that applies from 1 April. One point that doesn’t necessarily stand out but is nonetheless important was the change to the uprating of tax thresholds and allowances in line with the CPI rather than the RPI measure of inflation. The overall effect of this is that tax allowances and thresholds will rise more slowly in future meaning that Tax and National Insurance bills will increase over time in comparison to earnings leaving taxpayers with less expendable income.
One of the more interesting budget announcements was the proposed consultation on converging income tax and National Insurance (NIC). Its long been understood that NIC is little more than a stealth tax but the complexity of such a change means that this is likely to be a lengthy process. Such a convergence of Tax and NIC would effectively change the headline rates of tax to 32%, 41% and 51% which could be a bitter pill to swallow unless the tax system is subjected to wider reforms to shelter non-earned income from the effective tax rate increase. In addition, for businesses providing consultancy services, hopes of the IR35 rules being scrapped have been dashed as the Chancellor instead announced that measures will be introduced to improve the way IR35 is administered which is in reality likely to have little impact on the threat of IR35.
Further to the Chancellor’s Budget Speech our Budget 2011 Summary has now been published in the resources section of the website.
Internet links: Budget 2011 Summary
Posted – 25/03/2011