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Untitled Document
Chancellor Gordon Brown has delivered his last Budget before the likely General Election, taking as
his theme the strong performance of the UK's economy. Inflation is at its lowest for 30 years, interest
rates have been at their lowest for 35 years, and employment levels are at a record high. Mr Brown
summarised his forecasts for growth, expecting inflation to rise to 1.75% from its current level
of 1.6% by the end of 2005, and to 2% in 2006 and beyond.
He predicted economic growth of between 3% and 3.5% in 2005, and between 2.5% and 3% in 2006. Growth
for 2004 was confirmed at 3.1%, as forecast.
Announcing the publication of the Hampton Review into reducing red tape and promoting enterprise in
Britain, the Chancellor also pledged to cut red tape and reduce the number of inspection agencies
responsible for ensuring firms comply with the law from 35 to 9, and the number of public sector
inspectorates from 11 to 4.
Overall, the emphasis of the Budget was on catering for working families, the over-65s and first-time
buyers, and the Conservatives have already criticised the Chancellor's plans as "vote now, pay
later".
The next edition of BAD News will include analysis of the impact of the Budget on small firms, with
reaction from small business representatives.
Here are the key points from the Budget 2005 that will affect small businesses in the UK:
Taxation
Tax rates will be frozen on: corporation tax, capital gains tax, air passenger duties, insurance premium
tax, climate change levy, aggregates levy and company car levy.
As in 2004-05, the corporation tax main rate is 30%. The small companies' rate is 19% for companies
with taxable profits between £50,000 and £300,000 and the starting rate is zero for companies
with taxable profits below £10,000. The main rate of corporation tax for 2006-07 will remain
at 30%.
From 1 April, businesses with turnover of less than £60,000, up from £58,000, will be
exempt from registering for VAT. The de-registration threshold will increase from £56,000 to £58,000.
A package of measures will be introduced from 1 April to allow European companies based in the UK
to be taxed on a similar basis to UK companies.
The Inland Revenue and Customs and Excise will consult on a single tax account for small businesses,
where information need only be provided once, as well as a single point of contact for both VAT and
corporation tax, and flexible options for tax payments, including tax incentives for switching to
online filing systems. Around 600,000 firms are set to benefit from the simplification of VAT.
The threshold for paying stamp duty on residential land and property will rise from £60,000
to £120,000 from tomorrow. For all non-residential land and property, the rates are 0% for
transactions of £150,000 or less, 1% for transactions over £150,000 to £250,000,
3% for transactions over £250,000 to £500,000 and 4% for transactions over £500,000.
The starting point for paying inheritance tax rates will be raised to £275,000 in 2005, £285,000
in 2006 and to £300,000 in 2007.
There will be a 1p rise on a pint of beer and a 4p rise on a bottle of wine from 20 March, but duties
have been frozen on spirits, cider and sparkling wine. There will be a 7p rise on tobacco from today.
Vehicle excise duty will rise by £5 to £170 for vehicles above 1549cc and registered before
March 2001, and by £5 for Band E and Band F vehicles registered after March 2001.
Due to high oil prices, the annual rise in fuel duty will be frozen until 1 September, when the price
of petrol and diesel will rise by 1.22p per litre.
Tax avoidance measures announced in November 2004's Pre-Budget Report were confirmed: chiefly these
involve cracking down on businesses using employment-related securities or restructuring their finances
to avoid tax. Some of these measures will be included in the Finance Bill 2005, others will take
effect from today.
National Insurance Contributions (NICs)
For the self-employed, the rate of Class 2 contributions will be increased in line with inflation
to £2.10 per week. There will be no change in the Class 1 rate paid by employers and employees,
or in the Class 4 profit-related rate paid by the self-employed.
The threshold for employers', employees' and self-employed NICs in 2005-06 will increase in line with
inflation to £94 per week (£4,888 per year).
The Class 4 lower profits limit will increase by £150 to £4,895 per year, and the upper
profits limit will rise by £1,040 to £32,760 per year.
Employment
£65 million will be spent on rolling out National Employer Training pilots, which are expected
to cover the whole country by 2007-8.
New centres will be developed to help potential entrepreneurs get vocational training in areas of
high ethnic minority unemployment.
A new measure will take effect from 1 September which allows employers to make scholarship payments
of up to £15,000 free of tax and NICs in a single academic year to an employee attending a
full-time course at a university or technical college.
The payment of Working Tax Credit via the employer (PVE) will be phased out between November 2005
and April 2006. 1.2 million small businesses stand to benefit from this reform.
Local enterprise
The Government will introduce a Local Enterprise Growth Initiative worth £50 million in 2006-7,
rising to £150 million per year in 2008-9, subject to confirmation in the 2006 Budget.
Enterprise Areas will be supported by £5 million of funding over three years for the new Entrepreneur
Scholarship scheme, and by £5 million over three years for support of business incubation.
The Government will introduce a business premises renovation allowance scheme which will provide 100%
capital allowances for the costs of renovating business properties in Enterprise Areas that have
been vacant for at least a year.
Bristol, Nottingham and Birmingham will join Newcastle, Manchester and York as 'Science Cities', and
the research and development (R&D) tax credit for medium-sized research firms is set to be extended.
Small technology businesses will benefit from a £100 million share of public sector research
contracts, and universities opening their research to business will be given funding incentives.
In 2,000 enterprise areas, the time-limited incentive for commercial property purchases will cease,
being replaced by a new incentive.
Euro
Reviewing progress on joining the euro has been held back until the next Budget.
More information
For a summary of the Chancellor's main points, go to:
http://budget2005.treasury.gov.uk
To read the full Budget 2005 speech, go to:
http://www.hm-treasury.gov.uk/budget/budget_05/bud_bud05_speech.cfm
To read the full Budget 2005 report, go to:
http://www.hm-treasury.gov.uk/budget/budget_05/budget_report/bud_bud05_report.cfm
2005-03-18
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