Pre-Budget Statement Analysis

I had a call from a lovely chap at Voyager Software yesterday asking if I’d be interested in an analysis of the pre-budget statement.  Never one to pass up the opportunity for someone else to do all the work – of course I said “yes please”.  So, here is Voyager’s Sales Director, Paul Thompson’s analyses on how the Budget statement will affect the SME Recruitment market.

“We all know that cash flow is the lifeblood of an SME recruitment business and this was the main thrust of the Chancellor’s new measures.

“First the good news.  From now on, recruiters can spread their tax obligations (including corporation tax, VAT, National Insurance and Income tax) across monthly instalments, rather than in one cash flow stripping whack.

“Further to this, the government will now allow recruiters to offset losses against profits from the last three years, rather than only the previous year.  So if 2009 turns out to be the challenge that is widely predicted, many recruitment firms will be able to claim a tax rebate going back as far as 2006/7.

“The Chancellor will also make it easier to get credit through a small business finance scheme, pledging £1 billion for small businesses to be made available in loans from £1,000 to £1 million.

“They have also promised that state owned banks will pledge not to increase interest rates for SME overdrafts for at least 1 year – although with interest rates predicted to drop to 0.5% by the end of 2010 this may not be quite as generous as some may think. 

“The Chancellor’s much trumpeted reduction in the rate of VAT to 15% for the next 13 months will have very little impact on the wider economy – with shops reducing prices by 20% to make a sale, I can’t see how much use a further 2.5% will be, except for recruiters supplying financial institutions.  Otherwise it’s good news for printing companies, maybe, but it will be more of a hindrance than a help to the recruitment industry at large.

However, with the increase in small companies’ rate of corporation tax, deferred to an as yet unspecified date, many will still breathe a sigh of relief.

“All this expenditure has to be recouped from somewhere, and with National Insurance contributions set to rise in April 2011 by ½ of one percent for both employees and employers, the smart operators are bound to replace administrative staff with software packages, such as Voyager’s Mid-Office product that will effectively slash employer’s wage bills by an average of £20k per year, per employee.

“So it’s not all doom and gloom.  The Chancellor was at pains to point out that that there are still 500,000 job vacancies in UK, and with the Prime Minister declaring his intention to build his way out of the oncoming recession with a variety of road widening schemes, the outlook might be significantly brighter for those Recruiter’s operating a Construction division.”

I shall allow them a tiny bit of self promotion in return…… for details of how Voyager’s software packages can help take the bite out of the credit crunch, visit www.voyage.co.ukor contact Paul on 0800 008 6262.

Comments

[Peter Tyler]

For those people who are contracting or freelancing through their own limited company you may find our pre-budget summary useful as well...as we focus on specific points that affect contractors.

1. Income Shifting - the Chancellor announced in the pre-budget report that he was to delay the anticipated introduction of new "Income Shifting" legislation.

It is likely that this legislation will be delayed until the current economic difficulties are over and given that an election is due within the next 18 months or so, there is even the possibility that it will not be introduced at all.

With this delay many contractors could choose to save a significant amount of tax by restructuring the shareholding of their limited company.

2. Flat rate VAT changes

You have read about the reduction in VAT from 17.5% to 15% with effect from midnight on 30th November 2008 until midnight on 31st December 2009.

However, there have also been some changes made to the Flat Rate VAT scheme percentages, used by many contractors/freelancers, to take into account the reduction in the main rate.

A copy of our pre-budget report can be found at http://www.freestyleaccounting.com/contractors/the_budget_2008/2008_pre-budget_report for those who may be interested.