Earlier this week, the Chancellor of the Exchequer, Philip Hammond, appeared with his Budget Box, the iconic red briefcase used to carry the Chancellor’s speech from Number 11 to the House of Commons, to deliver the final budget before the UK leaves the European Union.
The post-Brexit economic landscape is uncertain, so in a show of support for British businesses, Mr. Hammond included some pro-business policies. Some have argued, however, that it’s too little, too late and the measures don’t go far enough.
So, what does the budget mean for your business?
One of the key points in the budget was cutting business rates by a third for smaller shops, bars, pubs, restaurants, and cafes. It is aimed to support small businesses with a rateable value below £51,000. It’s estimated that this will result in a saving for 90% of independent businesses. The news will be well received at a time when the high street is struggling.
Whilst this is a clear positive, critics have argued that the government should’ve gone further and offered relief to small business that is over the £51,000 threshold. Others have suggested – rather drastically – that business rates should be scrapped altogether and replaced with a tax aimed at commercial landowners.
The levy is paid by employers in England who have an annual pay bill of over £3m and the government uses the income to fund training for apprentices. Until now, SMEs have had to contribute 10% towards the cost of training and assessment, however, the Budget announced a reduction to the co-investment rate meaning that SMEs in England will only have to contribute 5% of the costs. The rollout date for this has not yet been finalised. The aim is to encourage apprenticeships and close the UK skills gap at a time when foreign skilled workers are reported to be fleeing the UK due to Brexit.
National Living Wage
From April 2019, the National Living Wage – the legal minimum wage for workers over the age of 25 – will increase by 4.9% to £8.21 per hour. That’s a £691 increase per qualifying employee. For an estimated 2.4m UK workers, it’s great news, however, some small businesses who are struggling with cash flow already may be worried about the increasing wage bill.
Annual Investment Allowance
For the next two years, the Annual Investment Allowance will increase a whopping 400% from £200,000 to £1,000,000. This is a huge incentive for businesses to make capital investments and benefit from paying less tax. The increase commences in January 2019 and commences for a period of two years, so if you’ve got any plans to buy assets, that is the time to do it. To look after your cash flow and spread the repayments over a longer term, you should be thinking about asset finance.
Reversing a 2002 change to the insolvency regime, the Chancellor reinstated HMRC as a preferred creditor. When a business enters insolvency, taxes such as VAT and PAYE paid by customers and employees are held in trust and then distributed amongst the creditors.
Currently, HMRC is an unsecured creditor and has to compete with pension funds, suppliers and lenders to be repaid. With this move, they will jump up the pecking order. Senior insolvency professionals have been highly critical of the change and have suggested that this simply transfers the risk from HMRC to ordinary suppliers and employees of the business.
The scheme which allows entrepreneurs to benefit from relief on capital gains tax upon the sale of a company has survived the Budget, but its eligibility has been narrowed. The minimum qualifying period has been extended from twelve months to two years, meaning you must have been a shareholder for two years to qualify.
Additionally, you must be entitled to 5% of the net profit and distributable profits and net assets of a company in order to claim relief. It is intended to target overly-complicated share structures which take advantage of Entrepreneur’s Relief, however, critics argue that some companies have complex structures for entirely commercial reasons.
The news surrounding business rates, the apprenticeship levy and the annual investment allowance are undoubtedly positives for small businesses. If you would like to discuss anything mentioned in this blog post, please contact us today.