Almost 450,000 of small businesses will see their national insurance requirements disappear as a large tax cut appears in the budget next year, according to the chancellor. George Osborne planned these cuts to help small companies out, but these measures faced a lot of critics, even though they were meant to help cash-strapped professionals.
One set of criticisms say that he was not holding off increasing business rates. The employment allowance he introduced will remove the first £2,000 from the national insurance contribution of employers around the country in order to help promote growth. This give away will eventually end up costing £6 billion over five years, which in turn means that 30% of all employers will pay new taxes where as right now they are not paying job taxes at all.
For individuals setting up their own business, hiring a first employee will be much easier than before. They will be able to hire somebody for £22,000 a year and not pay any job taxes. This will come into effect next year and corporation taxes for large enterprises will impact up to 20% of their current spending in business taxes. This change will bring the tax code in line with what small businesses used to pay back in 1973.
An accountant at UHY Hacker Young said that this unification of business taxes might have other implications however. He is concerned that small businesses will be affected in other ways by this tax change, such as companies who pay corporate taxes in quarterly installments will be on this new rate, while those who pay once a year are not. Unifying rates will impact the ones who pay once a year, forcing them to pay taxes every quarter.
The Forum of Private Businesses (FPB) for its part welcomed the new rules. Alex Jackman, the group’s head of policies, said that his only disappointment is that it is a year away. He had also hoped for a reduction in rates, which have been going up 13% in the past three years.
The British Retail Consortium also hoped for lower taxes. This group represents some high-street shops and they said that rates will continue to rise which is very disappointing. They had hoped for frozen rates to be implemented. Right now, lending to small businesses is down by over 25% since 2009 , and only real decreases will help the situation.
More details about the exact changes to the code will be coming later in the week, but Vince Cable, the business secretary, said the government will likely say that this new unified system will likely not become fully implemented before 2014. For additional funds, a new lending system will be introduced by the Bank of England.
Few details were available about the new scheme, but it might encourage lending to small businesses which would help grow the economy. Right now, employment rights shares are worth almost £50,000 in some companies, which is a big part of the lending process.
Janet Williamson from the firm TUC added that they are spending over £200 million to help hard working families win their own employment rights, which is not always easy in the current economic situation. The value of these taxes are passed down to them, and this can be a shock for company owners.
Between the various business taxes and the inheritance tax bill, it hits them where it hurts the most. This brings a horrible choice for many of these owners, to either shrink their companies or pass on the cost to employees. The chancellor added in his own address that he wants to increase the value of government procurement as yet another measure to help small businesses.