We all knew there would be some hard cuts ahead from the new coalition government as they seek to make good the country’s large deficit. Supposedly a fair budget, however, it appears to me that most of my Mumpreneur clients will be worse off.
Many of my Mumpreneur clients have one or two children and have their own business, sole trader and limited company, making anything from small losses up to the limits of the basic rate band. They are typically not VAT registered. If this definition applies to you, read on for how the budget will affect you in 2011.
Firstly, the good news, which is that the personal allowance will be increased by £1,000 from April 2011. This means that you will be able to receive an additional £1,000 tax free as long as you are a basic rate taxpayer. This will save you £170 in 2011/12. Further good news for Mumpreneur directors is that the proposed increase in corporation tax for small companies has been scrapped and a 1% reduction has been proposed, meaning that your profits will be taxed at 20%, not the formerly proposed 22%. If your profits are £10,000 this will save you £200.
However, the reduced eligibility for tax credits will affect many of my Mumpreneur clients who have a combined income of more than the proposed £40k limit. The further bad news regarding tax credits is that it is proposed that this limit be brought down further over coming years meaning that many of my Mumpreneur clients and their families will cease to be eligible. The child element is set to increase by £150 for less well-off families, but so far this has not been defined. Child Benefit will be frozen for the next 3 years which will cost my Mumpreneur clients with one child around £50 per annum.
But the biggest impact on all of us will be the rise in VAT to 20% from January 2011. Estimates vary on this, but it is expected to cost the typical family around £500 a year. However, let’s consider how it will affect non-VAT registered Mumpreneurs’ businesses. Say you currently spend £1,500 a year on your business stationery, computer equipment, software, etc, under the new VAT rate this will actually cost you £1,532. It will be as if everything you buy has gone up in price by 2%. If you buy a large amount of stock for your business, such as retail, the impact on your business will be even greater, and all Mumpreneurs should plan for this VAT rise as far as they can in the following ways:
- Plan your purchases carefully towards the end of 2010 to make sure you buy high value/volume products before the VAT increase.
- Consider how the increase in VAT will affect your business and whether you can pass on some of the extra costs to your clients by increasing your prices.
- As a last resort, and don’t let the tax tail wag the common sense dog, consider registering for VAT. This should only be considered if most of your customers are VAT registered as the impact of your VAT inclusive prices will not cost them any extra. However, if most of your customers are non-VAT registered, the fact that you are not could put you at a competitive advantage in 2011/12 as your VAT registered competitors become more expensive.
If you would like any advice in this area or any other areas of accounting or tax, please contact me on 01767 260282 or amy@tayloraccountancy.net, www.tayloraccountancy.net.
Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances and properly implemented.
