Small business owners have cautiously welcomed the 2016 budget after George Osborne announced a number of measures that will give SMEs a small amount of breathing space – at least from the financial year 2017-18. George Osborne said his business tax reforms were part of a “Budget for small business”.
Here are the key changes:
The business rate relief threshold will increase from £6000 to a maximum of £15,000 a year meaning approximately 600,000 shopkeepers and small business owners will not be required to pay any business rates from 2017-18. There will also be a higher rate of relief from £18,000 to £51,000, a move that should help thousands more small businesses. From April 2017, 600,000 small firms will not have to pay business rates, while 250,000 will pay lower rates. According to Sage data, more than a third of the UK’s small businesses claim that reforming business rates will have the biggest impact in transforming their company.
Rates will be based on CPI rather than RPI meaning that retailers will be able to work with more accurate bills, which should help with forward planning. See *below.
Help with buying retail property: commercial stamp duty rate on purchases up to £150,000 is now zero, then 2 per cent on the next £100,000 and 5 per cent top rate above £250,000.
Class 2 national insurance contributions for the self-employed will be abolished from April 2018. Osborne is also raising the threshold for paying income tax to £11,500 by 2017. The threshold for paying the higher rate of tax is also to be raised, from £43,000 to £45,000 in the tax year 2017/18.
Fuel duty is frozen
Support for online retailers by clamping down on VAT avoidance by overseas firms to create a level playing field. Osborne expressed his desire to help small businesses cope with what he called “the great unfairness” they faced when trying to compete with some suppliers selling goods online. He wants to take measures to stop overseas retailers storing goods in the UK and then selling the goods online without paying VAT.
HM Revenue & Customs will be helped out so that they can create a seven-day service
There will be dedicated phone lines at HMRC for small businesses and the self-employed.
Extension of entrepreneur’s relief to external investors who hold newly issued shares in unlisted companies from March 2016. Investors are allowed 10 per cent relief on investments up to £10m so long as the shares are held for three years. Until now, though, only shareholders who were employed in companies, either as directors or employees, were eligible for this relief
There was a cut to capital gains tax on investments – not including residential property, from 28 per cent to 20 per cent on investments (other than buy-to-let properties).
Cut in corporation tax, down to 17 per cent by 2020, which encourages new businesses to set up in the UK. The UK now has the lowest rate of corporation tax among G20 countries and less than half the rate of the USA.
Two new tax-free allowances worth £1,000 a year for ‘micro-entrepreneurs’ – that is, people who make money from occasional jobs or through renting out property they own. The chancellor claimed no forms or paperwork were needed but this was a part of bringing the tax system into the digital age.
How will it be paid for?
There will be a debt interest rate relief cap for large companies, who will have the amount of past losses they can carry forward to offset their corporation tax bill. Capped at 50% of current profit, this should help to raise £8bn over five years. CBI spokesperson Carolyn Fairbairn, director general of the CBI business lobby group, noted that although this was in line with the current ‘international consensus’ on big business behaviour and accountability, “Changes to the tax treatment of losses will make it harder for larger scale-up firms and companies that have been through tough times to play their part in the recovery.” Seeing as much of that money never makes it into the general economy certainly not through taxation, whereas the money from small businesses always does, it shouldn’t be missed, should it?
Improvements in infrastructure
High Speed 3 (HS3) between Leeds and Manchester will go ahead, cutting journey times from 50 minutes to around 30. An extra £161m will turn the M62 into a four-lane motorway, while £75m was allocated to improve other northern roads, including the A66 and A69. £700m for flood defences was promised.
Tolls on the Severn river crossings will be halved and eventually abolished altogether.
*A quick note on Consumer Prices Index vs Retail Prices Index
What are the key differences between CPI and RPI?
The RPI is calculated using a shopping basket of ‘essential’ goods that an average household could be said to buy. This week we have seen the addition of coffee ‘pods’ to the basket. There are more than 650 goods and services that we spend our money on, including bread and ready-made meals, alcohol and so on.
The inflation rate – the amount by which prices rise over time – is calculated based on the changes in the basket over a 12-month period. The RPI is the headline rate of inflation and shows the percentage price rise over the past 12 months.
The RPI is used when calculating increases in State pensions, many private pensions, some State benefits, and student loan rates.
The Consumer Prices Index (CPI) does not include any housing costs, such as the effect of mortgage rates or council tax.
Over to you
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