The FSB had urged George Osborne to give small businesses, limited-company contractors and umbrella companies time to implement any changes to the VAT rate and he did indeed do so in his budget speech yesterday. As from 4th January 2011 the standard rate of VAT will increase to 20%.
The FSB pointed out that small businesses had had to pay an additional £1,500 in administrative costs to implement the short term reduction in the VAT rate introduced by the Labour government.
The Federation also asked the Coalition to consider other measures to help small businesses and in at least some cases they got their wish. For example, George Osborne did extend the Enterprise Finance Guarantee scheme.
Another item on the FSB’s wish list was a one financial year National Insurance Contributions zero rate for employers in small businesses with less than four staff on the next three employees they hire.
The Chancellor went one better than that by announcing that from September all new businesses outside London and the South East will have 12 months exemption from NICs for their first 10 employees.
This could benefit 400,000 small firms, including IT contractors and umbrella company workers, by up to £50,000 and it is thought that this benefit will last for the next 3 years.
Employers can benefit from a maximum limit of £5,000 per employee which will allow them to hire senior staff on salaries of up to £46,000 per annum. Unfortunately, this scheme is only for new businesses and not for companies that existed prior to the budget announcement.
Osborne said the NIC holiday was intended to stimulate growth in the private sector in regions where there is currently a high reliance on public sector employment.
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