So the election is over, deals have been done and we now have a coalition in peace time for the first time I believe since 1931.
With very uncharacteristic speed for governments, statements have been made, spending cuts announced and now a programme of legislation introduced through the Queen’s speech to parliament covering a multitude of policy issues.
Of course, those of us in the accountancy profession are really waiting with bated breath for the budget due on June 22nd. So far, the one common thread characterising this new coalition has been the speed with which everything has been dealt with. The coalition itself was pulled together in record time and the spending cuts were identified unusually rapidly. The saying, “more haste less speed”, does come to mind with all this rushing around. If the same almost indecent haste is applied to the budget, it could end in tears. History is replete with examples of legislation introduced without sufficient consideration. Some of the areas being discussed could create as many tax saving opportunities as they do raise revenue which at the moment, has to be the government’s objective in tackling the deficit.
Proposals to increase personal allowances, or at least raise the level at which the poorly paid first start to pay tax, needs to be very carefully thought through. How will they ensure that only the right people benefit from this situation?
What seems to be apparent is that this new government is determined to lower corporation tax rates. Initial speculation has focused on the higher rate of tax with some commentators even speculating that it could be reduced from 28% to 25%. As a small business advocate, I would of course be pressing for any Corporation Tax rate reductions to focus on the lower rate of 21% and we may well see such a reduction.
What seems clear to me from this is that the benefits of operating through a limited company are, if anything going, to become even more clear cut and recent figures for company incorporations published by Companies House seem to suggest that people have cottoned on to this and are forming companies as if there is no tomorrow. Year on year, company formations are up dramatically on 2009. In the first 19 weeks of 2010, 147,821 companies have been formed compared with 125,978 for 2009, an increase of over 17%. We have seen this demand at first hand through our company formation site www.companiesmadesimple.com and all the signs are that this is likely to continue.
How this new government, in its first budget, deal with certain key tax issues could shape tax planning for small businesses considerably and more importantly, provide certain tax breaks that were never intended.
We must all wait with bated breath.