Rumours were rife ahead of this year’s Budget. With 2016 shaping up to be a volatile year for small businesses, many feared duty hikes, the slashing of tax relief and rising insurance costs on top of already painful cash flow pressures.
Then, an hour before the statement, David Cameron told the cabinet to expect “a pro-enterprise, pro-infrastructure, pro-devolution” Budget. Turned out he was telling the truth.
By lowering stamp duty and corporation tax while doubling the business relief rate for small firms, the Government is finally coming out on the side of small businesses. Better still the increase in the personal tax allowance and a rapid turn around on rumoured cuts to Entrepreneurs’ Relief, will help offset the abolition of dividend relief, incentivising small enterprises to keep growing.
This support comes just in time, with small firms’ cash flows facing pressure from pension auto-enrolment and the National Living Wage coming in this April. With downgraded UK growth predictions and increasingly volatile global markets, not to mention the uncertainty of Brexit, British small businesses are going to need all the help they can get.
It’s worth noting however that these policies will help some businesses more than other. Many will benefit traditional businesses such as high street retailers, whereas businesses in the new economy such as high-tech firms need a different kind of support, especially where funding is concerned. These are the firms that will help the UK compete in the global economy, “whatever the world throws at us” (to quote Mr Osborne).
My biggest disappointment from this year’s Budget was that we heard nothing on access to finance for young firms. On the same day Legal & General reported small businesses are still depending on credit cards and personal loans, this is a significant omission.
That said, the policies that were announced will undoubtedly be welcomed by many small business owners. Here are the main changes coming into effect:
Also known as non-domestic rates, business rates are a tax on businesses in order to contribute to local services. George Osborne has announced a significant – and perhaps most importantly, permanent – relief from business rates for small and micro businesses, raising the relief threshold from £6,000 to £15,000. This will raise 600,000 out of the tax altogether, with a further 250,000 due to pay lower rates.
Personal Tax Allowance
The personal allowance (in other words the amount you are allowed to earn before tax) is set to rise to £11,500 from the start of the 2017/2018 financial year. This will help offset some of the losses accrued from the abolition of dividend relief for small business owners, particularly those in the critical early stages of their business.
National Insurance Contributions
Class 2 National Insurance Contributions (or NICs) made by self-employed people who earn a profit of £5,965 or more a year will be abolished for the self-employed from 2018. This will be particularly good news for sole traders that earn £8,060 a year or more, as currently they have to pay both the Class 2 and Class 4 NICs, whereas by 2018, they will only need to pay one.
In combination with the increase in personal tax allowance, this will fundamentally allow millions of self-employed individuals to keep more of the money they earn, investing it back into their business.
Extended Entrepreneurs’ Relief
Entrepreneurs’ Relief was introduced in the mid-nineties to give business owners looking to sell their business a preferential tax rate of 10% on gains of up to £10 million. This has been reviewed a number of times in previous Budgets and has now been extended to enable small business owners who are retiring to pass their business on to family members as a going concern. This is a huge relief and a great incentive for owner managers to grow their business.
The Government announced that it will close VAT loopholes currently used by some overseas internet merchandisers. This will prevent these companies from importing goods into Britain through marketplaces such as Amazon and Ebay without charging VAT. By taking away this VAT advantage, policy makers are helping to create a level playing field for the UK’s small firms, which have always needed to pay VAT, and these overseas sellers.
The Budget has brought with it lower stamp duty for commercial property, heralding good news for any small business owner. Any property worth up to £150,000 will be exempt from stamp duty following the changes that came into force at midnight on March 16th, with a 2% and 5% levy on commercial property worth £100,000 and £250,000 respectively. It’s estimated that 90% of small businesses will benefit from these measures, fortifying Osborne’s “pro-enterprise” agenda.
Fuel Duty Freeze
In what will be a very popular move, Osborne has extended the freeze on fuel duty for the sixth year in a row, saving £270 for the average small company with a van. This will no doubt be music to the ears to small business owners in relation to delivery, logistics and transport costs.
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