Member Article

Corporation tax and fuel in the Budget

Phil Burkert, National New Business Manager at Northgate Vehicle Hire

Last week we heard the Chancellor George Osborne’s final Budget before the general election. There has been a lot of press coverage about how the economy is doing at the moment and how far we’ve come, but what does it mean for your business? This blog post delves deeper into two main points from the coalition’s final Budget announcement – cutting corporation tax and the abolition of planned fuel rises.

Corporation tax cuts In two weeks’ time, the Government will cut the current corporation tax to 20% for businesses making profit in excess of £300,000 - one of the lowest rates of any major economy in the world , and down 28% on the 2010 rates. Corporation tax for companies making a profit of less than £300,000 will remain at the existing level of 20%, meaning the two figures will be aligned for the first time.

Looking back over the past five years, we’ve seen corporation tax experience a downward trend, which businesses have been able to capitalise on. For example, a business with an annual profit of £3,000,000 will have seen the reductions over the years have a real impact on their bottom line. In 2010, their corporation tax bill would have been a huge £840,000, which will have been reduced to £630,000 in 2014. Now, with the new lower 20% rate being introduced to just £600,000, a huge £240,000 saving will have been experienced in just five years.

Customers that I work with would have been reluctant to put their profit behind growth in recent years, especially while the taxes have been so high. However, with strong economic growth, and corporation tax still heading in the right direction, the encouragement to grow is back in Britain. Essentially, the change encourages businesses to reach for the higher end of the profit margin and means they will not get penalised for doing so, resulting in the savings being able to be reinvested into new areas of growth for the business, such as new locations, equipment and employee development and training.

The corporation tax cut is a huge positive for businesses and workforces – no matter what size. For me, this change is better than any grant or other rate cuts and I think that the savings, not just immediately but cumulatively over the past five years, will help to give businesses the confidence and resource they require to concentrate on growth. This is something that has been difficult to focus on with the credit crunch a not so distant memory.

Fuel price freeze The second announcement that is going to have a great impact on businesses is the abolition of planned fuel rises – representing the longest duty freeze in over twenty years. The Chancellor’s combined five year fuel freeze will have created a £10 saving each time one of Britain’s 30 million motorists fill up at the pump . While great for every road user, it’s important to look at what this will mean for your business’ bottom line. Fuel is a cost that bears heavily on small and large businesses alike. The previous government’s plans for a fuel duty escalator would have resulted in a rise above inflation year-on-year. However, the latest budget is a blessing for businesses of all sizes – ensuring that the falling oil price is being passed onto the pumps. The estimated cost saving, in business terms, means that for a business operating a fleet of 50 vehicles that average 75 full tanks (circa 30,000 miles of fuel) will save around £37,000 over the year at the pumps.

Despite this very welcome news, we all know how unpredictable the fuel industry is, and will continue to be. It’s important to take as much control back on your fuel bill as possible. Go over to our blog post on fuel efficiency to ensure you gain as much control over this expense as possible.

I don’t think it’s any coincidence that the five years of frozen duty has coincided with the country’s return to economic growth – great for businesses in our line of work. The extra capital in the pockets of businesses as a result of the Budget, whatever industry you’re in, should be invested wisely for the future. From taking the reins on your fuel bill, to ensuring that you’re in keeping with company tax rates to avoid any penalties, it’s important to keep up to date with any changes that effect your business. This is even more pertinent with the upcoming election as the current Budget could be void in little over a month and times are still uncertain.

This was posted in Bdaily's Members' News section by Louise Watson .