Welcome to the November/December 2008 Newsletter from Connolly Accountants Ltd

As the business community continues to deal with the repercussions of last week’s Pre-Budget Report, concerns have been raised over the effectiveness of the Chancellor’s decision to cut VAT. Some experts fear the cost of implementing the tax reduction – which is intended to boost consumer spending – will discourage small firms from passing on the benefits to their customers.

And in a dramatic attempt to counteract the recession, the Bank of England has cut interest rates to their lowest level in 53 years. However, minutes from the MPC's meeting indicate that the bank was tempted to slash rates even further, and may do so in the future – perhaps even when they meet again this week.

Self assessment reminder …

Don't forget, 31 January 2009 is the last day for filing your 2007/08 tax return online. Remember, returns filed after 31 January may attract a penalty, so please collate all the relevant documentation as soon as possible to ensure you meet the deadline.

Small firms 'may struggle' to implement VAT cut

Many businesses throughout the UK are still grappling with the implications of November's dramatic cut in VAT, which came into effect on Monday.

Whilst many larger companies have already adjusted their prices to reflect the tax reduction, commentators have warned that small firms may struggle to implement the change as quickly as the Treasury has directed.

In his Pre-Budget Report on 24 November, the Chancellor announced that the standard rate of VAT would fall from 17.5% to 15% with effect from 1 December 2008 to 31 December 2009.

Alistair Darling urged retailers to pass on the cut 'as soon as possible,' but doing so could prove an onerous task for smaller retailers, the Forum of Private Business (FPB) has claimed.

According to the lobby group, the additional expense and administration involved in implementing the lower rate will 'vastly overshadow' the benefits of the cut.

'The reduction in VAT to 15% seems pointless, when, for example, a product that sells for £4.99 […] will retail for £4.89 […] after the VAT rate has been reduced,' commented Nick Palin, the FPB's Director of Finance. 'All [this reduction] does is increase the amount of time smaller retailers have to spend wading through bureaucracy.'

As a result, the organisation said the VAT cut – which is intended to boost consumer spending – could 'backfire' because it is unlikely to convince smaller businesses to slash their prices.

The British Retail Consortium (BRC) has expressed similar concerns. BRC Director General, Stephen Robertson, said: 'Shops will cope, but implementing a new VAT rate in just a week will be exceptionally difficult for customers and retailers at their busiest time of year.'

'IT system changes, replacing shelf labels and stickering-over prices on packs will be a mammoth and costly task. Small retailers will find all this particularly difficult to accommodate,' he added.

Conversely, large high street chains have reduced prices with gusto, with many stores launching a wave of price wars to stimulate spending over the festive period.

To discuss how the changes may affect you and your business, please contact us. To read our summary of the Pre-Budget Report click here.


UK interest rates slashed to 50-year low

In their last meeting on 6 November, the Bank of England's Monetary Policy Committee (MPC) unanimously voted to cut interest rates by 1.5% in a dramatic attempt to bolster the country's ailing economy.

The larger-than-expected cut takes the base rate to 3% - its lowest level in 53 years.

The Confederation of British Industry (CBI), which had been campaigning for a reduction in the base rate, described the decision as a 'bold and welcome move'. 'This cut [...] should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers,' said CBI director-general, Richard Lambert.

However, minutes from the MPC's meeting reveal that the Bank was tempted to go even further by cutting rates to 2.5%, and may well do so in the future.

The Bank's own calculations showed that a bigger cut would be needed to stop inflation falling too far below its target next year, but the committee finally decided that such a big cut would come as too much of a shock and potentially lead to too sharp a fall in the pound.

Visit our website to find out the latest developments as the MPC meets again this week.


ESSENTIAL TAX DATES AND DEADLINES

Click here for key tax deadlines for the coming month.


QUOTE OF THE MONTH

'The number of small businesses who have their own website has grown over the past two years, which indicates that small firms are becoming increasingly internet-savvy. Despite the onset of an economic downturn, all small firms should look to the internet to maximise their sales and increase efficiency.'
John Walker, Policy Chairman at the Federation of Small Businesses, explains the value of the internet for SMEs


WEBSITE OF THE MONTH

www.personneltoday.com
Useful information and legal guides on a wide range of employment-related issues


ON OUR WEBSITE

What’s new in the world of tax and business?
Visit our recently added Hot Topics section – here you will find information on IR35 and the recent Dragonfly Consulting case.

Business advice at your fingertips
For a range of information on key issues affecting your business, including advice on VAT, visit our business guides.

Experts condemn Darling’s 'lukewarm' measures to help SMEs
Business commentators have criticised the Pre-Budget Report for deferring a crackdown on SME and family business taxation rather than abolishing it.
Click here for the full story

Internet 'instrumental' in surviving the downturn
Small firms that regularly use the internet to promote their business stand a much better chance of beating the economic downturn, according to new research.
Click here for the full story

Buy-to-let landlords facing difficulties
A new report by credit ratings agency Standard & Poor has revealed serious problems in the buy-to-let market.
Click here for the full story

Duty limit raised for online purchases
Internet shoppers who buy goods from outside the EU will no longer have to pay customs duty on items worth less than £105, under new rules announced by HM Revenue and Customs.
Click here for the full story

Businesses targeted through skills ad campaign
Employers are being urged to recognise the benefits of workplace training through a new Government ad campaign.
Click here for the full story