The contributions that small and medium-sized businesses make to the country’s economy have been rewarded, by a Spring Budget that contains more good news than bad for UK industry.
To the surprise of many, businesses have largely escaped Budget cuts and have instead reaped the rewards in the form of reduced business rates, a drop in Corporation Tax, new rates for commercial stamp duty aimed at helping smaller businesses and a simplified tax system for the self-employed, which sees Class 2 national insurance abolished.
From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates and there will be a tapered rate of relief on properties worth up to £15,000. The move, which is good news for independent retailers and single site units, means that 600,000 businesses will pay no rates.
From this April, Capital Gains Tax rates will be cut from 28 per cent to 20 per cent for gains which fall in the higher rate band and the basic rate from 18 per cent to 10 per cent, although residential property will still be taxed at current rates. Whilst Capital Gains Tax on residential property does not apply to the main home, additional properties will be penalised and will hit buy-to-let landlords.
The main rate of Corporation Tax will be reduced to 17 per cent, benefitting over one million businesses although this will not take effect until 2020. The move aims to help businesses with cash flow.
Currently, the self-employed have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year but from 2018, national insurance contributions will be simplified and Class 2 contributions will be abolished, with Class 4 NICs reformed so the self-employed can continue to build their pension benefit entitlement.
Personal Income Tax allowances are set to increase again. Currently up to £10,600 can be earned each year tax-free and this figure is already set to rise to £11,000 in 2016. The latest announcement sees a further increase to £11,500 in April 2017.
On the down side, personal and business insurance costs are set to rise with an additional half a per cent added which will now see Insurance Premium Tax rise to 10 per cent. The Chancellor has also used the Budget to introduce a Sugar Tax, with soft drinks companies having to pay a levy on drinks with added sugar from April 2018.
According to the Office for Budget Responsibility, the UK economy will expand by 2 per cent this year, 2.2 per cent in 2017 and then 2.1 per cent in 2018, 2019 and 2020.
Although the Chancellor has claimed that this growth will be faster than any of the major development economies he has, nevertheless, has to revise his original predictions downwards. Mr Osborne, who has signalled his intention to support the ‘stay’ vote in the forthcoming Brexit referendum, has words of warning for the ‘leave’ camp stating that the UK economy growth figures are based on the UK remaining in the European Union.
David Wright, Managing Partner at Worcester-based Nicklin LLP, said: “This Budget has taken many pundits by surprise. The big prediction that fuel duty would rise, which would have hit businesses and motorists hard, failed to materialise.
“Instead we have a Spring Statement which is largely positive news for SMEs. Unless you are a buy-to-let landlord or a sugary drinks manufacturer, there is very little negative news.
However, David also issued a word of caution saying: “There are certain elements of the current Budget which may not be particularly beneficial to small business-owners. The Chancellor has hinted that salary sacrifice schemes may be limited in the future and he has also signalled an end to off payroll engagement in the public sector from April 2017. Both measures could hit business owners who use such schemes to avoid paying tax.
“It should also be noted that the Chancellor has given away a substantial amount in this Budget and, without the usual large-scale hikes in duty and other taxes to cover these giveaways, one has to question how the books will be balanced long term. Without wishing to appear cynical, he may decide to claw back revenue in his autumn statement.