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10:37 on Friday
20 February 2004

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Budget small business proposals summary

The Bad News

  • National Insurance bands are to be frozen at current levels for the tax year 2003/2004.

  • Employee's National Insurance will be deducted at 11% (2002 10%) from 5 April 2003 on pay between 4,615 and 30,420 (maximum NIC payable 2,838.55, compared to 2,580.50).

  • Pay over 30,420 will be subject to a 1% charge without any ceiling.

  • This may pave the way for larger increases in future years

  • Employer's National Insurance will increase by 1% to 12.8% from 6 April 2003.

  • Class IV National Insurance will increase by 1% to 8% on profits between 4,615 and 30,420, with an additional 1% being paying on profits above that level.

The Good

  • Small company tax rate reduced by 1% to 19%

  • Starting rate is reduced to Nil so a small company with taxable profits of 10,000 will have no tax to pay, effective immediately.

  • Stamp duty has been abolished on business property up to 150,000 - good news for property investment and development companies amongst others.

  • Capital gains tax for companies will be cut to 20% for assets held more than 1 year and to 10% for assets held more than 2 years.

  • Taper relief on the gains on disposal of business assets has been accelerated so that after only 2 years of ownership of the asset only 25% of the gain will be chargeable.

  • Vat Registration Threshold increased to 55,000.

  • Small companies will no longer be fined for the late payment of VAT.

  • Bad debt relief can be claimed after 6 months without the previous administration of writing to your customer and informing them that the VAT has been recovered.

  • Annual Accounting Scheme threshold increased to 600,000 with effect from 25 April 2002. In addition to the above it will now be possible to pay your VAT liability in 3 interim instalments rather than 9 under the Annual Accounting Scheme.

  • In order to reduce the administration burden on small companies there will be an optional flat rate scheme - the VAT liability will be calculated as a percentage of all turnover where the percentage will be set by industry e.g. 5% for food retail to 14.5% for IT consultancy.

  • In order to ease cashflow for subcontractors in the construction industry, tax deducted under the CIS scheme can now be offset against PAYE payments due and there will no longer be a wait until the end of the tax year to reclaim it.

  • Over the next few years it will become compulsory to file PAYE returns electronically for certain companies, for companies with more than 250 employees this will be from 2004/05, 50 or more employees from 2005/06.

  • For those with fewer than 50 employees there will be an cash incentive to file electronically from 2004/05 of 250, tapering to 75 in 2008/09.

  • There is to be universal electronic filing from 6 April 2009.

Points for small businesses to consider

  • Profitable sole traders and partnerships may consider incorporating to benefit from the lower levels of Corporation Tax and also to 'cap' National Insurance payments

  • Although the flat rate payment scheme for VAT will save time spent on administration, the rates applied may not be attractive for your business - you could end up paying more VAT.

  • Small businesses will have to look at IT investment in order to ensure that they are ready to meet the Inland Revenue's aims with regard to electronic filing.

For more help and information visit

April 2002




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