Corporation Tax relief offset by rise in National Insurance

Darling’s pre-Budget report receives mixed response from small businesses

Today’s pre-Budget report received mixed reaction from small businesses as relief over the postponed Corporation Tax hike was offset by an increase to National Insurance (NI).

Alastair Darling said the government would postpone the planned rise in the small companies’ rate of corporation tax, from 21% to 22%, until April 2011.

However, news that all employer, employee and self-employed rates of NI will rise by 0.5% from April 2011, was unpopular with small business groups.

Darling said he would raise the starting point from which NI was payable to £20,000 to protect those on low incomes. NI is currently levied on employers at a rate of 12.8% and employees at a rate of 11%.

The Chancellor also outlined a number of measures which he said would help small businesses, including extending the availability of the enterprise finance guarantee (EFG) scheme for another 12 months.   The scheme sees the government acts as a guarantor for 75% of bank loans to firms with a turnover of £25m or less and Darling said the extension would provide a further £500m of loans for small businesses.   There was also an indefinite extension to the ‘time to pay’ scheme, which allows firms to spread out tax bills, and has allowed 150,000 small businesses to defer £4bn of payments.

John Wright, national chairman of the Federation of Small Businesses, welcomed the extension to the EFG scheme and said the delay in the Corporation Tax rise would give small companies a ‘real helping hand’. However, he said raising NI was an attack on jobs.

He added: “While unemployment continues to rise, it is unaccountable that the government hasn’t considered a new approach, such as a NI rebate for new jobs in small firms. This pre-budget report should have encouraged and rewarded job creation in 2010, rather than imposed this tax.”

Charlie Mullins, founder and managing director of Pimlico Plumbers, was also disappointed with the rise.

He said: “Ramping up NI is no way to get us out of trouble. Small businesses, the backbone of the economy have been attacked at the very time when they need help. These are the people who are going to get us out of trouble, and penalising them is plain stupidity in my book.”

Other measures included increasing the tax relief on empty properties, so companies with empty buildings of a value below £18,000 will not pay business tax, a cut to a 10p corporation tax for company profits that derive from R&D, and a strategic ‘fund of funds’ for high tech industries that will receive a further £100m of government money.   The Chancellor also unveiled plans to set up a ‘capital growth fund’ which will provide capital for small and medium-sized businesses and will be funded with £500m of contributions from major banks and financial institutions.

Darling surprised some commentators by confirming that while VAT will rise to 17.5% in January, as previously announced, he had “no other changes in VAT to announce”.

© Crimson Business Ltd. 2009

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