The last Budget before the UK leaves the EU was revealed by Chancellor Philip Hammond at the Houses of Parliament today. With the country edging close to Brexit, and no deal in place, the small business community is facing an uncertain time. The chancellor has tried to immunise the community from the uncertainty surrounding Brexit and give a well-needed boost to high street businesses.
There was a lot contained within the Budget; several relatively small giveaways and short-term fixes but with the 29 March departure from the EU looming the Chancellor opted to tweak a number of existing regimes and not perform wholesale changes to the system. Perhaps next year, hopefully with all uncertainty resolved, the Chancellor will be able to aid small businesses and their owners further. Here Simon Rothenberg, a senior tax partner from Blick Rothenberg highlights how the Budget 2018 will affect small businesses.
The economy
The Chancellor opened with positive news on the current state of the economy and expected future growth and pledged to help hard-working families with the Budget, while at the same time holding funds in the event that a positive deal in relation to Brexit is not agreed. He stated that he was confident but not complacent that a good deal would be reached which would provide a double “Brexit dividend” – improved economic performance accompanied by the release of funds reserved for the event of no deal being reached.
The Chancellor expects a further 800,000 jobs to be created by 2023 as part of the “jobs miracle” the country is currently experiencing. Most of this growth in jobs has been possible due to small businesses supporting such enterprises is vital over the next five years to see jobs come to fruition accompanied by continued real wage growth and the deficit to fall to under 1% of GDP.
The high street
Turning to the high street, the Chancellor announced that he would cut business rates for properties with a rateable value under £51,000 by a third. This in effect gives ailing high street shops, pubs and business approximately £8,000. While this will provide some support to such businesses, there is an argument that the modern and future high street will be such a change from the high street of the past that a more structural change is required. As such, the Chancellor has provided funding to local authorities to help with the transformation of the high street and he is looking at how to increase footfall on the future high street with incentives to convert the commercial property to residential, among other measures.
The Chancellor also announced that the British Business Bank would be given £1bn to help fund SME home builders in an effort to increase construction in this sector. Previous efforts to stimulate SME home builders have failed but the continued efforts to promote small businesses are welcomed.
Impact on business owners
The VAT registration threshold was kept frozen for a further two years at £85,000. This was despite widespread rumour that it would be reduced. With the added administrative burden of making tax digital looming this is to be welcomed as it will allow business owners to focus on their business.
Small business owners will also be pleased that Entrepreneurs relief is not going to be abolished as was rumoured before the budget. This important tax relief for business owners and entrepreneurs allows owners to benefit from a 10% tax rate on the proceeds of the sale of their business, rather than the higher capital gains rate of 28%.
Business investment
Small businesses which perform research and development through outsourced partners will be limited to the level of relief they can claim as part of the R&D tax credits system – this will now be capped at the level of the annual PAYE tax bill.
Business will welcome the continued high level of the annual investment allowance which has increased to £1m per annum for the next two year, will effect from April 2019. This significant increase from £200,000 per annum will help stimulate companies to invest in plant, machinery and equipment with 100% tax relief for the spend up to £1m given in the year of the spend. While this change is welcomed, the continued change to the threshold makes it increasingly difficult for businesses to plan their expenditure and the increased level of the allowance should be maintained going forward. The capital allowances regime is crying out for simplification to make it much clearer for small business owners to understand how they will receive tax relief for the amount they spend, however, the chancellor declined to make any significant changes in this regard.
Other measures of note
The Chancellor also announced that SMEs would be given access to the financial ombudsman service (“FOS”). Small companies with a turnover under £6.5m and fewer than 50 employees can now take claims to the FOS as a business rather than as individuals as of this month. The plans will allow an estimated 210,000 more companies to benefit from the FOS to resolve disputes with the financial services industry.
There is a continued crackdown on the “self-employed” operating through personal service companies, however, the expected extension of the public-sector rules to the private sector was limited to large and medium companies. This will be revisited in future budgets as the Chancellor continues to focus on this area because when it is thought that over one-third of people operating this way should actually be taxed as employees.
The chancellor confirmed rumours that he would restrict the employment allowance, which gives £3,000 rebate on National Insurance Contributions (“NICs) to all employers, to employers with National Insurance Contributions of under £100k per annum from 2020/21.
While there were a significant number of measures announced to attempt to combat climate change and plastic waste including a tax on the import and manufacture of plastic packaging which is under 30% recyclable, the Chancellor stopped short of introducing a tax on single-use plastics at this point in time.
More on small business news and the 2018 budget.
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