Welfare cuts, improvements to inheritance tax and scrapping student grants were some of the most eye-catching aspects of the first Conservative Budget for almost two decades, as announced by Chancellor George Osborne on Wednesday. But, while it wasn’t a great Budget for business, there were some Government measures revealed that could have an impact on Britain’s SME community.
Helping free up business funding
There was a disappointing lack of detail in the Chancellor’s speech about the need to improve small business funding, but the Government did announce it will finalise legislation this year forcing the big banks to share with alternative lenders information about their small business customers who have been rejected for loans. This is something Boost Capital has called for since it was first announced almost a year ago in order to improve the flow of capital to the UK’s SME population. Real progress can’t come too soon. The British Business Bank will also be given a mandate to boost and diversify the availability of finance to smaller firms.
Boosting employment and skills
The Budget contained several measures to help companies employ more staff and get the talent and experience many currently lack in their workforce.
- To address the skills gap so many British firms say is holding them back, an apprenticeship levy will be introduced on larger companies to fund 3 million new apprenticeship places.
- SMEs will be helped with National Insurance (NI) costs by the Employment Allowance being lifted from £2,000 to £3,000 from April next year. Many small businesses’ NI bills will be significantly reduced and up to 90,000 exempted altogether. It’s hoped this will encourage small companies to create jobs. But from April 2016, firms where the director is the only employee will no longer be able to claim the Employment Allowance – a potential blow to how some business owners remunerate themselves.
- The doubling of free childcare entitlement from 15 to 30 hours a week for working parents of three and four-year-olds from September 2017 could mean more female candidates can re-enter the workforce after having children, bringing their skills back into the working economy. But there was no talk of making childcare costs for the self-employed a tax-deductible expense, as some had hoped.
A living wage
Business groups weren’t so keen on Osborne’s plans for a national living wage of more than £9 an hour to be introduced by 2020 for workers aged 25 and over. This will launch at an initial rate of £7.20 an hour from next April – 70p higher than the current national minimum wage. Critics say many SMEs will struggle to meet this increased pay requirement, with small shops, hospitality businesses and care providers singled out as being particularly vulnerable.
Tax cuts, dividend changes and allowance increases
- Corporation tax will be cut incrementally from its current 20 per cent level to 18 per cent by 2020, helping more than one million firms of all sizes with £6.6 billion in savings, the Government estimates.
- Company shareholders receiving dividend payments could be affected by the axing of the Dividend Tax Credit, which is to be replaced by a new tax-free Dividend Allowance of £5,000 for all taxpayers. Beyond that first £5,000, basic rate taxpayers will pay 7.5 per cent on any additional dividend income, those in the higher rate band will be calculated at 32.5 per cent, and additional rate taxpayers at 38.1 per cent. It sounds good for smaller investors, but those with very large shareholdings, typically £140,000 or more, or those receiving sizeable dividends from a closed company could see their tax burden increase.
- The Annual Investment Allowance will be increased to £200,000 until the end of this Parliament, rather than falling back to £25,000 at the end of the year as previously planned. This will apply to all qualifying investment in plant and machinery made on or after January 1st next year. The move was welcomed as a way to help firms investing for growth over the longer term, in particular those in manufacturing, wholesale and retail and agriculture.
- When it comes to income tax, the personal allowance will also be increased to £11,000 in 2016-17, eventually reaching £12,500 by the end of the Parliament. Plus, the higher rate threshold will move to £43,000 from the current £42,385 by 2016-17, taking 130,000 people out of the highest tax band. The eventual target is for the higher rate tax threshold to sit at £50,000 by this Parliament’s close.
- Small firms that are trading but avoid paying tax could soon be caught out by new plans to allow HMRC to take data from online business intermediaries and electronic payment providers to identify those dodging tax.
The best of the rest
There were a handful of other policies that could prove relevant to smaller businesses over time.
- Local councils will consult on extending Sunday trading hours, which the Government says will be great for business, but critics claim could favour large retailers over their smaller rivals.
- Six Next Generation Digital Economy Centres will be built in London, Swansea, Newcastle, Nottingham, York and Bath with an investment of £23 million to nurture high-tech start-ups and fast-growth firms in innovative fields.
- A new round of Enterprise Zones could be created to add to the 24 already existing in England, encouraging entrepreneurship, business growth and job creation.
- The Government has vowed to spread investment across the UK regions, including supporting the so-called Northern Powerhouse and the development of the Midlands into Britain’s Engine of Growth.
- New cars and motorcycles will now have to undergo their first MOT test after four years rather than three, as is the case presently. Vehicle excise duty for new cars will also be reformed, with this revenue going into a road fund to improve the UK’s road network. Commitments have also been made to upgrade the country’s rail infrastructure.
- The Government will publish a business tax roadmap by April next year, outlining its specific plans for business taxes for the rest of the Parliament.
So, no mention of late payments, business rates or SME finance – some of the most pressing issues for Britain’s smaller companies – but a few positive moves for firms looking to invest for growth. Time will tell if this Government has better news for the small business community in the years – and Budgets – to come.