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How will the Pre-Budget Report affect your business?

The Chancellor gave his Pre-Budget Report on 24 November 2008.

Read the report and further information on the HM Treasury website – Opens in a new window.

The main points of interest for businesses are as follows.

Economic outlook

Gross domestic product (GDP) is forecast to grow by 0.75 per cent in 2008 as a whole, with output falling in the second half of the year. The recession is forecast to continue into the first half of 2009, before GDP growth begins to recover in the second half of the year.

Consumer price index (CPI) inflation is expected to fall from the October 2008 rate of 4.5 per cent to less than 1 per cent in the second half of 2009.

Taxes, returns and payroll

HM Revenue & Customs (HMRC) have introduced a new, dedicated Business Payment Support Service designed to meet the needs of businesses affected by the current economic conditions. This will provide a dedicated helpline for customers who are worried about being able to pay taxes owed to HMRC (eg corporation tax, VAT, PAYE (Pay As You Earn), income tax and National Insurance contributions (NICs)). Businesses may be able to spread payments over a more affordable period.

See our page on the Business Payment Support Service.

The standard rate of VAT will be reduced by 2.5 per cent from 17.5 per cent to 15 per cent from 1 December 2008 to 31 December 2009, when it will revert to 17.5 per cent. Only standard-rated sales are affected. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions.

Find out more about the change to the rate of VAT and how it might affect you on the HMRC website – Opens in a new window.

The sectoral rates of the VAT flat-rate scheme will be amended in line with the standard rate reduction. In addition, from 1 April 2009, the eligibility tests for the VAT flat-rate scheme will be simplified, and fewer large retailers will be required to agree a bespoke VAT accounting scheme by increasing the threshold to £130 million.

Download information on changes to the flat-rate scheme from the HMRC website (PDF) – Opens in a new window.

The planned increase in the small company rate for corporation tax from 21 per cent to 22 per cent from 1 April 2009 has been deferred until 1 April 2010.

Download further information on changes to the small company rate from the HMRC website (PDF) – Opens in a new window.

The loss carry-back rules are to be extended for corporation tax accounting periods ending between 24 November 2008 and 23 November 2009 and, for unincorporated businesses, losses in the tax year 2008/09. The period that current trading losses from businesses can be carried back against previous profits will increase from one year to three years, with losses being carried back against later years first. The additional amount to be carried back under the new provision is capped at £50,000. Tax repayments from the extended relief will be made to businesses from Budget 2009.

Download detailed information about loss carry-back rules changes from the HMRC website (PDF) – Opens in a new window.

From April 2009, the personal income tax allowance will increase from £6,035 to £6,475, and the basic rate tax limit from £34,800 to £37,400.

The basic personal allowance for individuals with income over £100,000 is to be reduced from April 2010.

From April 2011, there will be a new income tax rate of 45 per cent on income over £150,000.

Class 1 NICs rates for both employers and employees and Class 4 NICs for the self-employed are to be increased by 0.5 per cent from April 2011.

Air passenger duty is to be reformed, changing from a two-band structure to a four-band structure, from 1 November 2009.

The number of vehicle excise duty bands will increase from seven to 13 from April 2009. However, rates will increase by no more than £5 for any car, and no more than £30 in 2010 (many will see a £30 cut).

The excise duty on alcoholic drinks will be increased by 8 per cent from Monday 1 December 2008.

The excise duty on cigarettes will be increased by 2 per cent from 22 to 24 per cent and on other tobacco products by 4 per cent from 18.00 on Monday 24 November 2008.

The fuel duty rates for 2008 will be reinstated from 1 December 2008.

Download the new rates, thresholds, allowances and duties from the HMRC website (PDF) – Opens in a new window.

There is to be a temporary increase in the threshold for empty property relief. For the financial year 2009/10, empty properties with a rateable value of less than £15,000 will be exempt from business rates.

Legislation will be introduced to give businesses more time to pay certain backdated business rates bills issued before 31 March 2010. Businesses facing such bills will be able to pay their liability for previous years in equal interest-free instalments over eight years, rather than immediately.

Employing people

Train to Gain programmes in England will be extended to provide training and support to individuals in pre-redundancy situations to help them to develop the skills needed to move easily into a new job, either in their existing sector or in a new one. Skills Hubs – networks of local partners providing job brokerage services, training and other support – will be established in response to large-scale redundancies. The Rapid Response Service is to be expanded so that support can be made available to smaller redundancies as well as larger ones.

Finance and grants

A temporary Small Business Finance Scheme will be launched to support up to £1 billion of bank lending. There will also be a separate £1 billion guarantee facility to support bank lending to small exporters, a £50 million fund to convert businesses’ debt into equity and a £25 million regional loan transition fund. The government will launch, with Business Link, a new easily accessible portal to direct credit-worthy small and medium-sized enterprises who are experiencing problems accessing credit to the scheme appropriate for them.

Grow your business

There will be measures to enhance small and medium-sized enterprises’ access to government contracts, including a new online portal for all government contracts over £20,000.

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