On Monday 29 October 2018, Chancellor Phillip Hammond delivered his 72-minute Budget speech, with promises being made to include changes to business and personal tax, reduced business rates, freezing fuel duty and increasing minimum wage – all in support of No. 10’s ‘end of austerity’ message.
But what do the announcements mean for small business owners? We have outlined the key points that may impact your business – both positive and those to watch out for.
If you’re a small business based on the high-street, the Chancellor announced a £675 million Future High Streets Fund for local councils to plan the future of our high-streets, which is committed to help independent businesses threatened by larger online giants. In addition to this, if your business has a rateable value of £51,000 or less, the Chancellor declared that he is reducing business rates by a third over a two-year period, which will amount to around £8,000 worth of savings.
A number of announcements were made in regard to workers. Does your small business hire apprentices? Some employers will now only have to pay half (5%) of what they paid towards the apprenticeship levy, in order to strengthen the role of employers in the apprenticeship programme, in a £695 million package. This shift in focus on apprenticeships is a bid to make sure British workers are ‘equipped with the skills they need to thrive and prosper’ – a worthwhile move ahead of Brexit.
The Chancellor made mention of the environment in his Budget announcement too, with the proposal of a tax for companies who manufacture plastic made of less than 30% recycled material. Although this may not affect you directly, it could have an impact on some of your suppliers and the associated cost increases as a part of the supply chain.
If you are a growing business looking to purchase new equipment, you’ll be pleased to hear that the annual investment allowance (AIA) has been set to rise from £200,000 to £1 million for two years from 1 January 2019. AIA is a beneficial form of tax relief for UK businesses created for the purchase of business equipment, where you can deduct the full value of eligible plant and machinery from your profit before tax. This additional allowance is aimed to stimulate small businesses’ investments in plant, machinery and extra equipment needed to help them grow.
The personal tax allowance value – so the maximum you can earn without being taxed – is being increased to £12,500 for basic tax payers, with higher-rate threshold increasing to £50,000.
For those small businesses who pay staff the national minimum wage, this is being increased from £7.38 to £7.70 for 21-24 year olds, from £5.90 to £6.15 for 18-20 year olds and from £4.20 to £4.35 for 16-17 year olds. For those over the age of 25 who receive the national living wage, this is set to rise by 4.9% to £8.21 per hour. The increase to the minimum wage will have a direct impact on smaller businesses, particularly those in retail, hospitality, agriculture and other associated industries. And the pressure for wage inflation in low level administrative roles will grow.
In addition to the direct changes to business rates and taxes, the Chancellor also announced additional support services for SMEs, including being given access to the financial ombudsman service (‘FOS’). Small businesses, classified as having a turnover of £6.5m or less and having fewer than 50 employees, can take claims to the FOS. This plan has been created to allow an estimated 210,000 more companies benefit from FOS to resolve disputes with the financial services industry.
However, it’s not all good news. Reforms to individuals working under IR35 – or off-payroll working rules – are to be extended to the private sector from April 2020. The IR35 is a tax legislation designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as contractors, who do not meet the HMRC’s definition of self-employment. In essence, self-employed workers could end up paying more tax from 2020, with medium and large companies in the private sector now having an obligation to check the status of their contractors.
If you focus on R&D to grow your business, the Government will be adding a further £1.6 billion into the budget for R&D funding. Despite the positive increase in funding, be aware that from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability of that year. The reintroduction of a cap is being positioned as an anti-fraud measure as part of the Chancellor’s bid to claw back £2 billion in avoided tax.
It is, however, positive to hear that entrepreneurs’ relief is not going to be abolished as previously rumoured. Instead, the minimum qualifying period for entrepreneurs’ relief is being extended from 12 months to 2 years, meaning a shareholder must have been involved with the company as an employee or director for a minimum of two years to be eligible in addition to other qualifying criteria.
A new initiative – although less alarming than it sounds – is the Government’s introduction of a 2% digital services tax on the revenues of certain digital businesses from April 2020. The reality (and good news) is, however, that this will not really affect small businesses as it is only applicable to the large technology companies with annual global revenue over £500 million.
So, there’s some good news and some bad. Whilst not an exhaustive list, these are just some of the main points identified from the announcement that will affect small businesses.
Now you’re up-to-speed, why not sit back, grab a bottle of wine (and enjoy the 8p saving while it lasts) and prepare for the Budget commitments to take hold. Or, if you want to discuss in more detail how you can prepare your business for growth and access the necessary funding, give us a call on 0203 327 0567 or email [email protected].