Budget 2008

How will the Budget 2008 affect your business?

The Chancellor gave his Budget speech on 12 March 2008.

You can read the report and further information on the HM Treasury website.

The main points of interest for businesses are as follows:

General economic outlook

 

Budget 2008 takes place against a challenging global economic background. However, the flexibility and resilience of the UK economy provides a solid platform from which to face the global economic shocks from the continued disruption in global financial markets and the increase in energy and commodity prices.

As such:

·         Gross domestic product GDP growth in 2008 is predicted to be between 1.75 and 2.25 per cent, increasing to between 2.25 and 2.75 per cent in 2009 and 2.5 to 3 per cent in 2010.

·         The Government has asked the Bank of England to aim for an inflation rate of 2 per cent.

Taxes, returns & payroll

·         Confirmed decrease in the main rate of corporation tax (CT) from 30 to 28 per cent and an increase in the small companies' rate from 20 to 21 per cent from 1 April 2008. The fraction used in smoothing the difference between the main rate of CT and the small companies' rate (the marginal small companies' rate) will be set at 7/400.

·         A simplification of the associated company rules relating to the small companies' rate of CT.

·         Confirmation of the removal of the 10 pence starting rate for income tax so that, from 2008/09, there are only two bands - 20 pence and 40 pence rate - for earned income. The 20 pence rate will apply to taxable earned income up to £36,000; the 40 pence rate will apply to taxable earned income of £36,001 and above.

·         A range of tax incentives to encourage businesses to use fuel-efficient company cars: a reduction in the lower threshold for the 15 per cent company car tax band from 135 grams (g) to 130g of CO2/kilometre, reform of the capital allowance treatment of company cars, changes - from April 2009 - to the fuel benefit charge and a restructuring of vehicle excise duty.

·         A change to the law on company van fuel benefit so that reimbursement of private fuel cost is not treated as earnings for tax purposes.

Budget 2008

·         An increase in the VAT registration threshold from £64,000 to £67,000 - and the VAT deregistration threshold from £62,000 to £67,000 - from 1 April 2008.

·         The introduction of legislation so that, from 1 April 2009, all claims for over-declared or under-claimed VAT will be subject to a three-year time limit.

·         The launch of a consultation on collecting Class 2 and 4 National Insurance contributions from the self-employed.

·         Confirmation on the introduction of a flat-rate of Capital Gains Tax (CGT) set at 18 per cent, as well as the increase in the tax-free annual exempt amount from £9,200 to £9,600 for the 2008/09 tax year.

·         Introduction of entrepreneur's relief for CGT - reduces the effective rate to 10 per cent for up to the first £1 million of gains made over a lifetime on business assets.

·         The ability for businesses with main or special rate capital allowances pools that fall to £1,000 or below to write off the remaining unrelieved expenditure.

·         Powers for HM Revenue & Customs to waive surcharges and interest for those who failed to pay tax on time owing to events designated as national disasters such as the flooding in summer 2007.

·         The introduction of measures to prevent businesses in financial trouble from claiming research and development (R&D) tax credits. A cap of €7.5 million per project is also being introduced to restrict the amount of relief available under the R&D scheme for small and medium-sized companies (SMEs).

·         A range of changes to the rules on capital allowances for industrial and agricultural buildings, enterprise zones, plant and machinery, cars with low CO2 emissions, refuelling equipment for alternative fuels and water-saving technologies.

·         An annual investment allowance of £50,000 a year for plant and machinery investment to be introduced, replacing first year capital allowances.

·         The announcement of a wide range of simplification measures for business taxation, eg increasing - from 1 July 2008 - voluntary disclosure limits for indirect tax returns to the greater of £10,000 or 1 per cent of turnover, up to a maximum of £50,000; introducing an online system from 1 January 2010, which will facilitate the recovery of overseas VAT by UK business; modernising PAYE processes to simplify arrangements for all working students.

·         An increase in the climate change levy rates in line with inflation from 1 April 2009.

·         An increase in the aggregates levy from £1.95 to £2.00 per tonne from 1 April 2009.

·         A freeze in the lower landfill tax rate of £2.50 per tonne in 2009/10.

·         An extensive package of changes affecting residence and domicile rules and the remittance basis.

Budget 2008

Finance and grants

·         A temporary 20 per cent increase in the funds available under the small firms loan guarantee scheme.

·         A capital fund of £12.5 million to encourage more women to go into business.

·         An increase in the annual limit for an enterprise investment scheme investor to claim income tax relief from £400,000 to £500,000. The relief applies to investments made on or after 6 April 2008.

·         Support for mezzanine finance provision through additional enterprise capital funds.

Employing people

·         Expansion and improvement of Train to Gain.

·         Skills Accounts to be launched by 2010.

·         £60 million extra funding for adult skills.

·         Increase in the enterprise management incentive (EMI) scheme individual share option limit from £100,000 to £120,000.

·         A restriction so that only companies with fewer than 250 employees may offer EMI share options.

Environment and efficiency

·         An ambition from the Government for all new non-domestic buildings to be zero-carbon rated from 2019.

·         An undertaking to legislate to charge for the provision of single-use carrier bags unless retailers act voluntarily to impose their own charges.

Grow your business

Free trial periods for all suppliers newly registered with Supply2Gov to help SMEs win a greater share of public-sector contracts.

International trade

Introduction from 2010 of online system to help recovery of overseas VAT for UK businesses.

·         Reduction of Intrastat coverage requirement to 95 per cent, removing the need for many declarants to complete returns on their imports of European Union goods.