Thanks Darling: Good news for SMEs.

Serious times call for serious measures. This is, as Gordon said, no time for a novice. While the Tories whinge from the sidelines (and what IS your plan, George Osbourne?), Alastair Darling unveiled the Pre-budget Report. A full Budget in all but name, and frankly more significant than any of those in the past decade, it exposed the philosophical distance between Labour and Conservatives for the first time in a long while. I really liked the themes, philosophy and detail of it. I remembered why I support Labour.

The Chancellor of the Exchequer

Of course, the 45p tax rate for earners over £150k warmed my socialist cockles. But two measures stand out for me as real boons for small business.

Reducing VAT to 15% isn’t likely to send consumers running to buy Christmas presents, even if the £12bn or so it means will be swilling round the 2009 economy is very welcome. But, as one small business owner pointed out to me yesterday, it’s good news for SMEs thinking about big spending. It’s a good whack off a big purchase of say £20k. Yes, you can claim that money back (if you’re VAT registered) but you do have to pay it in the first place and that can be a blow to cashflow. My friend said it was a ‘good enough reason’ to make that big purchase in 2009 rather than 2010. Job done.

Secondly, the willingness of HMRC to show flexibility to small businesses who are having difficulty paying their corporation and income tax, VAT and NI is significant and enormously welcome. The message is: pay salaries, creditors and suppliers first and strike a deal with the taxman about what you owe. Small businesses often exist with tight cashflows and even just a small buffer zone can prevent an SMB from going bust (especially when a bank has withdrawn an overdraft facility at short notice). We also know that when a small firm goes bust, it can very easily take others with it and that’s bad. The banks aren’t providing the slack, so the government is right to do so in times like this and I think this will make a big difference in 2009.

There’s a lot to digest in today’s announcements but, in the light of global difficulties, the goverment has made its position clear: we need to borrow now to stimulate the economy and avoid the worst in the next few years, some support is necessary for specific groups and sectors (including small businesses) and, yes, we’re going to pay for this borrowing in the (better) years to come. We all wish it hadn’t come to this (aside from the progressive 45p tax rate, which is long overdue) but here we are. And in the absence of any other substantive plan (and an awful loat of petty shouting from the Tories), I’m happy to have Brown and Darling at the tiller. Here’s hoping we have a fair wind behind us.

Photo credit: HM Treasury.

5 thoughts on “Thanks Darling: Good news for SMEs.”

  1. For us, the reduction in VAT is an enormous plus. We sell second hand and antique items, so run a VAT Margin scheme.

    In essence, this means that, although we can’t charge any VAT on our items, as second hand goods are not VATable, the VAT man considers it reasonable to charge us VAT on our gross profit, i.e. the difference between what we get in, and what we pay for the goods. No, we can’t deduct any expenses made in getting the profit, just the difference between the two. So this means that I pay an additional 17.5% tax on my gross profits, regardless of whether I make a taxable net profit or not.

    As a micro business, this has always been a real thorn in my side. So for the next year, I will have a 2.5% bonus that I can pay to myself instead of the government! Yay!

  2. I would have liked to have seen the threshold at which companies have to register for VAT raised, my personal belief is that this is too low. If your turnover is only at the VAT threshold level of £67,000, the likelihood is that you are not making sufficient profit to pay for any additional staffing as well as yourself, and you are therefore doing all your own administration. Even if you are paying an accountant, you still have to prepare the information for him to calculate the VAT.

    Under the current circumstances, to take the turnover threshold up to £100,000 would have taken a large number of the smallest companies out of the loop, costing the Government comparably little, and saving the companies a great deal of administration time – this time saving would have been extremely valuable to a microcompany; as much if not more valuable than the money involved.

    My MP raised a question for me with the DTI, but was told that the UK threshold is plenty high enough, higher than most of Europe, and so there was not likely to be any adjustment in the near future. Shame that they didn’t take this opportunity to change their opinion.

  3. Come off it Dan – we’d be in a much better position to offer a real stimulus package if the public finances weren’t in such a mess after the last 10 years of over-spending on government.

    Small business will not be helped in the long-run by operating in a low growth economy where we are all paying off debt rather than using the money for something worthwhile like investing in education.

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