Budget 2012: Impacts on Small Commercial Property Businesses

Posted on 29 March, 2012 by MOVEHUT

On first impression, you might think there was little broadcasted in the Budget that will have an effect on small commercial property firms. Yet on closer examination, there are a small number of changes that could seriously affect the UK’s small and medium sized commercial property enterprises (SMEs).

At the same time, a number of things that the chancellor didn’t revise have come in for continuous criticism from the small commercial property business community.

Here we take a closer look at all these concerns.

Tax Simplifications

Possibly the main change for small firms is how they calculate their tax payments. From April 2013, commercial property companies with sales of up to £77,000 per year will be permitted to change their accounting from the traditional accrual method to a cash basis.

What this means is that small firms will only have to pay tax on the amount of money they have actually received, rather than total orders, as under the existing accrual-based system. This will be immensely beneficial for small commercial properties, as it will end their having to pay tax on received orders for which they have yet to be paid.

If successful, the Treasury will then consider expanding the adjustment to firms with sales of up to £150,000 per year, which it estimates would mean more than three million companies being able to benefit.

Yet while it will make life considerably easier for small businesses, and in many cases eliminate an unwanted financial burden, some commentators have warned that it will make tax dodging far easier.

Explaining this, head of taxation at accountancy group Acca Global, Chas Roy-Chowdhury, said this was because under the cash basis system, small commercial property firms could more easily calculate their tax returns on their own.

He added: “The accrual method is more complex, and therefore more often requires an outside accountant, who effectively checks a firms’ books.”

He further added: “Without this third-party checking, the fear is that there may be more deliberate evasion.”

George Osborne also confirmed that the Government is to move forward with plans to incorporate income tax and national insurance, first announced in last year’s Budget, so commercial property companies do not have to run two different payroll tax systems.

Corporation Tax

One of the much broadcasted declarations in the Budget was the Chancellor’s decision to speed up the drop in the basic rate of corporation tax, the taxation that firms have to pay on their profits.

The basic rate will now drop to 24 per cent next month, down from the present 26 per cent.

Yet this adjustment does not affect small commercial property firms, as those with profits below £300,000 a year already only have to pay 20 per cent.

This alteration was first announced by the Government back in 2010 and was a reduction of the 21 per cent rate that small commercial property companies had to pay.

Patent Box

Small companies which have patented a product will be able to benefit from the so-called Patent Box. The Patent Box is a reduced level of business tax on revenues credited to patents and similar sorts of intellectual property. It will come into effect from April 2013.

As confirmed by the chancellor, it will present a lower rate of 10 per cent. Sectors expected to benefit most include the software industry and pharmaceuticals.

Youth Enterprise Loans

Fledgling entrepreneurs were given a boost in the Budget by the announcement of a new loan initiative.

Under a one-year trial scheme to be launched by March 2013, up to 7,000 young individuals aged between 18 and 24 will be able to apply to borrow between £5,000 and £10,000 to back their business idea.

The Government is now looking for third parties to manage the scheme, with the Prince’s Trust being one name suggested.

It is not yet established what rates of interest will be charged on the loans, but if the scheme is successful, the Government says it wants to make it permanent.

Business Rates

Perhaps the biggest disappointment overall for small businesses was that George Osborne did not announce that they would be any reduction in business rates – the tax businesses have to pay on their commercial properties.

Instead, business rates will increase by 5.6 per cent from next month, as had earlier been announced.

Many small commercial property firms have complained that this increase will hit them hard.

Fuel duty

The Budget also didn’t offer any reprieve for small businesses struggling to pay high petrol and diesel prices. Instead, fuel duty will continue to increase by three pence in August.

John Walker, the National chairman of the Federation of Small Businesses, said: “We are disappointed that the chancellor has not announced a cut in the level of fuel duty and that the rise deferred to August is still to go ahead.”

He further added: “This will still hit small businesses and households hard and so we need to see a long-term solution to address high and volatile fuel prices.”

New loan scheme

One of the main developments this week for small commercial property firms, was the introduction of a new bank lending scheme, which was broadcasted a day before the Budget.

Under the £20bn National Loan Guarantee Scheme (NLGS), SMEs will be able to access loans with interest rates one percentage point lower than those obtainable outside the initiative.

Santander, Barclays, Lloyds and Royal Bank of Scotland have so far signed up, and commercial property firms with an annual income of up to £50 million, will be able to take part.

The reduced loans are being made available because the Government is to pledge £20bn of the banks’ own borrowing, in so doing allowing the lenders to borrow more economically than they normally do.

The FBS has given the scheme a warm welcome; however a number of small commercial property firms have protested that their main problem concerning bank loans is actually getting them approved, rather than the interest rate they have to pay.

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