2013 Budget commentary
Written by Ray Coman
In his first Budget since the loss of Britain’s credit rating, the chancellor has put forward accelerated plans for encouraging growth, spending and employment in the economy. The personal allowance increase and the corporation tax rate cut will both occur a year sooner than previously announced. Tax savings will also come to smaller businesses in the form of an employment allowance.
The most significant announcement came in the form of a new tax break for employers. Starting from 6 April 2014, all businesses will be entitled to an Employment Allowance which will cover the first £2,000 of employers’ national insurance liability.
As an illustration, employers would pay no national insurance on a £22,400 salary paid to one of their employees. This results from a rate of employer’s national insurance equal to 13.8% on any payments over approximately £7,900. To provide another example, the effect of the allowance is the same as eradicating national insurance on the hiring of four staff at the minimum wage (of say £11,525 per year.)
The announcement will be particularly helpful to small business seeking to hire their first employee. The incentive is well designed to relieve unemployment which remains stubbornly high among jobseekers in the 18-24 age band.
There was good news for larger business as well. The full rate of corporation tax is now to reduce by a further 1% to 20% starting in April 2015. In previous announcements the full rate of corporation tax was set to be reduced to 23% in April 2013, to 22% in April 2014 and 21% in April 2015. Following the budget proposal of today, the rate will be further reduced to 20% in April 2015.
The overall rate has so far dropped 2% a year since the year starting in April 2010 when it was 28%. Eventually, the most recent scheduled tax cut will put Britain’s rate of corporation tax the lowest in the Western world; lower than Luxembourg at 21%.
The personal allowance will increase from 6 April 2014 to £10,000. As a result, the increase is now taking place one year sooner than previously announced.
From April 2015, parents will be able to have up to 20% of their childcare costs paid tax free, subject to a yearly maximum £1,200 per child.
With a triple dip looming in the economy, the further cuts announced today are hoped to re-spirit the economy over the remaining term of the coalition. Opportunities will arise among individuals, families and small business to take advantage of these tax cuts. Please contact us if you would like to discuss your tax plans in further detail.
