Industry representatives have broadly welcomed many of the measures outlined by Chancellor Alistair Darling in yesterday’s (24 November) pre-budget report, but some aspects of his £7bn plan have not gone down so well.
In particular, proposals for a temporary business rates relief on vacant commercial property, option to pay tax bills by instalment for some businesses and allowing small and medium sized enterprises to offset losses against profits made in the past three years would be of most benefit to farmers.
“For farmers, the extension of loss relief is probably the main thing to come out of the report,” Grant Thornton’s Carlton Collister said. “The HMRC business support service will be important for a few farmers and the empty property relief will be good news for anyone that has diversified into commercial property – many of who are finding things quite difficult at present.”
Proposals to delay the rate of increase of higher Vehicle Excise Duty for 4x4s were also welcome, NFU president Peter Kendall said. “These proposals would have disproportionately impacted on farmers who rely on such vehicles in their businesses.”
But, he was concerned that the increase in employers’ national insurance contributions by 0.5% from April 2011 could adversely impact competitiveness.
The cut in VAT would make a small contribution to reducing the cost of many goods and services bought by farmers, Stephen Berry of NFU Mutual said.
“While the VAT reduction won’t directly improve farmers’ lot – it will help cash flows by reducing the amount farm businesses are out of pocket before they can reclaim VAT paid on goods and services they buy in.”
Mr Collister said the cuts in VAT would be of particular benefit to those who had let residential properties, who were unable to reclaim VAT on this revenue.
What the Chancellor said
Chancellor Alistair Darling unveiled a £7bn plan to support businesses and taxpayers through the likely recession, with an expectation to see strong economic growth return in 2011.
But he drew fire from shadow Chancellor George Osborne who said Mr Darling was trying to “borrow his way out of debt”. Mr Darling is bringing forward £3bn in capital spending which will cause national debt to rise until 2015 at the earliest.
The Treasury now expects the UK economy to shrink by 0.75% in 2008 and 1.75% in 2009.
As many had expected, Mr Darling has decided to cut VAT from 17.5% to 15%, with effect from next Monday. The new rate will remain in place for the whole of 2009.
Like other businesses, farm cash flows will benefit as good and services they buy will make a smaller dent in bank balances, but it will make no difference to bottom lines as many businesses reclaim VAT.
National Insurance up
Mr Darling’s speech also included a change to National Insurance contributions, which will rise by 0.5% for both employers and employees from April 2011.
However, Mr darling also said he would raise the starting threshold for NI, so that no one earning less than £20,000 a year would pay more.
Corporation tax reprieve
A scheduled increase in Corporation Tax, aimed at small businesses, will be deferred, Mr Darling said. “Small businesses will see their tax rate for 2009 remain unchanged.”
Other features of what he called a “comprehensive package of support” would allow business losses of up to £50,000 to be offset against profits from the last three years, the Chancellor said.
Business rates breather
Farmers who have adapted buildings for light industrial or office lets will also benefit from Mr Darling’s decision to make empty properties temporarily exempt from business rates.
Stephen Berry of NFU Mutual said: “While the VAT reduction won’t directly improve farmers’ lot – it will help cash flows by reducing the amount farm businesses are out of pocket before they can reclaim VAT paid on goods and services they buy in.
“Phased introduction of higher Vehicle Excise Duty will be welcomed by farmers and country people who need large 4wd vehicles for their work..
“The deferral of the planned increase in the small companies’ rate of Corporation Tax will benefit many farms that are incorporated.”
See what farmers make of Alistair Darling’s plans in our online forum.
User “He His-self” is unimpressed: “Thanks for nothing [Darling] . Please correct me if I am wrong but my summary is National Insurance up, fuel tax up and air passenger tax up. The VAT cut is irrelevant as we claim it back anyway. Some giveaway, a great big tax grab”