Philip Hammond’s first – and as he dramatically announced, final – Autumn Statement has been subject to much speculation. Offering the first concrete glimpse of May-era economic policy, Hammond announced a number of expected measures alongside a few curveballs. But where might small businesses stand as a result of the Chancellor’s speech?
Let’s start with the potential benefits: entrepreneurs and small business owners stand to benefit from a range of tax cuts. Rural rate relief will be increased to 100%, designed to greatly help businesses in areas with a population smaller than 3,000. On top of this, the commitment to reduce corporation tax to 17% will hopefully be good news to all small businesses running an incorporated company.
The huge billion-pound investment in establishing a nation built upon 5G and fibre optic connectivity is welcome news to businesses within all sectors. An increase in bandwidth coupled with faster, more reliable connectivity has the potential to provide tech firms with the resources for growth, and companies in other sectors could feel the benefit as more business services move to the cloud.
On the other hand: the £400 million investment in tech startups that need patient capital sounds enticing, but entrepreneurs should be aware that all that glitters may not be gold. Firstly, the figure is smaller in comparison to the amount of investment responsible for catapulting US firms such as Airbnb and Whatsapp. The US has always been a role-model in its attitude towards tech investment – as proved by the dominance of Silicon Valley – and while it’s good to see the Chancellor acknowledge our tech startups, the amount offered may be seen as a drop in the ocean.
On top of this, the announcement raises questions around how the funding will actually be accessed by firms. Historically, the government has distributed investment via the Better Business Bureau (BBB) who in turn allocates it to a limited number of VC houses. But with the requirements for VC houses traditionally favouring the more risk-averse business models, a large portion of startups could stand a chance of not benefiting from Hammond’s £400 million. I’d like to see a more transparent route to accessing the finance, with more educated risks being taken on the part of the government and the BBB to give all startups a fair chance of receiving investment.
The same point could be made about Hammond’s £2 billion investment in Research & Development. At face value this is good news for small businesses that qualify, but questions may/ should be asked about how this money can be accessed, as well as which additional spend areas are now included over and above what is covered by existing R&D tax relief schemes.
s, if I am the founder of a tech company, which could be the next Airbnb, WhatsApp or Instagram, where do I go to access this cash? And, what conditions will need to be met before I can access it?
Another potential negative/ disappointing aspect from the statement is Hammond’s adjustments to salary sacrifice schemes. This means that small business owners will be forced to review their employee benefits packages. While some benefits, such as childcare vouchers and the cycle to work programme will remain tax-free, schemes like gym memberships will now be taxed. Some employees may expect a cash alternative or salary increase to compensate, so small business owners should keep this in mind when it comes to planning cash flow.
The 30p increase in the Living Wage, from £7.20 to £7.50, was no doubt greeted with cheer from employees around the country as it represented a pay rise of £500 to the average worker. Small businesses – particularly those in the retail, leisure and hospitality sectors who rely on lower paid or temporary workers – should be cautious to ensure that this increase is taken into account when it comes to financial planning. By baking hikes in the national living wage into forecasts, small business owners can avoid any disastrous effects on margins.
While there are certainly some positives in Hammond’s statement, the forecast is dubious for small businesses. Despite handy investment in multiple areas, more detail is required as to who will have access to the funds and how. More to the point, small businesses could unintentionally be impacted by the negative side-effects of some of Hammond’s other announcements. Not the worst we could have expected, but certainly not the best either.
To find out how KPMG Small Business Accounting could help free up your time so you can concentrate on business success, request a callback for a quote today.
If you enjoyed that, why not read...