Emergency budget likely to affect businesses

The new coalition government has announced that its first budget will be presented on 22nd June. The main focus of the budget is likely to be how the government will set about reducing the current deficit that is threatening to derail the economy.

Business owners are probably right to feel a little apprehensive. Whilst on the one hand there may well be a clarification of Tory pledges to reduce corporation tax, simplification of the corporate tax system and an announcement on measures to make credit more widely available for UK businesses, there will be implications for company owners arising from the expected rise in capital gains tax.

Of most concern is that a significant rise in CGT will reduce or eliminate the current tax advantage that contractors and company directors enjoy by paying themselves in dividends rather than by salary or wages. As the measures are thought to be chiefly targeting higher income earners, there may be some relief for those on the basic rate of tax.

As it stands, employers will now not be hit with the increase in National Insurance as planned by the Labour government. However, employees will still face an increase in NI equating to one per cent of their gross pay.

There are also fears that the planned reduction in corporation tax may be postponed, possibly until the general economic system has improved. But business groups including the FSB and Institute of Directors are arguing that by making the tax burden on business lighter now, the country’s finances are more likely to improve in the short to medium term.

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