On 20th March the Chancellor of the Exchequer MP George Osbourne delivered the much-awaited 2013 Budget. Perhaps more so than in previous years, the Budget has been awaited by the general public, as it was expected that in it the Government would outline a series of far-reaching measures created to provide support to individuals and businesses throughout the United Kingdom amid the prevalent climate of economic uncertainty. Although the original document covers a wide range of economic measures, this article will provide a comprehensive description of the changes that the 2013 Budget will bring about for small UK business owners and for employees across the country.
The 2013 Budget and small business owners: what to expect
According to consultancy firm Deloitte, one of the two most commented topics regarding this year’s Budget relates to the changes proposed to corporation tax and to the new small business tax relief scheme.
The Chancellor announced that corporation tax will be gradually reduced over the next two years, with a cut from its current 24 per cent rate down to 21 per cent in 2014, and a further reduction in April 2015, when corporation tax will be set at an all-time low of 20 per cent. This measure has as its main objective to promote economic growth and confidence, not only in terms of attracting foreign investors, but also (and especially) when it comes to small and medium-sized UK businesses. At the same time, lower corporation tax rates (which once implemented, will in fact be the lowest of all Western economies) can also encourage start-ups.
During his 2013 Budget speech, the Chancellor also announced the implementation of a further measure to support small and medium-sized enterprises through a tax relief scheme. Small businesses can now benefit from the extended Seed Enterprise Investment Scheme, which offers several incentives to investors and business angels who may want to support small businesses. Under the new scheme, investors may benefit from a total tax relief of 78 per cent on investment sums of at least £100,000. This step can certainly help new start-ups in the hard task of securing private funding. Similarly, those interested in investing in small or emerging AIM-listed companies will be exempt from paying stamp duty on shares.
How the 2013 Budget benefits employees
Analysts at Deloitte affirm that the second most popular measure announced in this year’s Budget has to do with National Insurance contributions. According the plans announced by the Chancellor, employers will no longer be required to pay National Insurance contributions under the amount of £2,000. This figure means that starting in April, there will be approximately 450,000 small and medium-sized companies that will not be required to pay National Insurance. The reduction in tax bills will favour mostly small and medium-sized enterprises, as it is expected that 90 per cent of them will be directly affected by this measure. While it is believed that this measure will help create new jobs, it also benefits directly employees by allowing them to have a higher disposable income.
In line with the measures taken in previous years, the personal tax allowance for UK employees has been raised once again. During the next tax year, individuals will benefit from a £10,000 tax threshold, a figure that represents an average annual tax bill reduction of £200. Those over 65 years old will also benefit from a raised annual tax allowance of £9,440. Once again, this measure will raise the amount of disposable income available to British employees and households.
How the 2013 Budget benefits working parents
The third most notable change brought about by this year’s Budget relates to the Government’s support to families and workers who require childcare. During the next tax year, a new childcare tax break system will be in place, through which parents of children who are under 5 years old will be able to claim a maximum of £1,200 per year per child. This amount will be extended to include children under 12 years old within the next seven years.
Employees who require full-time childcare will also benefit from the Government’s announced replacement of childcare vouchers, which will be substituted for a 20 per cent tax break that is to cover nursery and childcare costs up to a maximum of £6,000 per year. It is estimated that almost 3 million working families will benefit from the new childcare support schemes.
In practical terms, the combination of lower National Insurance contributions, a higher tax allowance threshold, and childcare tax breaks will mean that employees with one child and with a gross income of £15,000 will have a disposable net income of £14,073 during the next tax year, as opposed to the current £13,788. For working parents whose gross income is £25,000, disposable income will increase to £20,873, instead of the current £20,588.