Budget 2016: What Does it Mean for Small Businesses?
Wednesday 16th March saw the Chancellor of the Exchequer George Osborne deliver his eighth Budget, something that he referred to regularly as “a Budget that backs small businesses”.
But did his opening remarks live up to what was actually contained inside that famous red case? Did the 2016 Budget really deliver good news for UK entrepreneurs and small businesses? We bring you a round-up of the key announcements and changes that will affect SMEs...
One of the most promising announcements for small businesses was the reform to business rates. From April 2017, at the start of the tax year, the new threshold for small business rate relief will be doubled from £6,000 to £12,000. If you’re a small business that occupies a property with a rateable value of £12,000 or less, you won’t pay any business rates at all. Also announced was a tapered rate of relief on properties that are valued up to £15,000.
According to Osborne, this means that as many as 600,000 small businesses will pay no business rates at all.
This announcement is likely to have delighted small business owners across the country, as business rates are undoubtedly one of the most unpopular taxes of all, particularly when you consider the disadvantage it gives to high street stores over online retailers.
A number of major changes were announced to the UK tax system. The first was that Corporation Tax, which currently stands at 20%, will be reduced to 17% by April 2020.
The second tax-related change was to Capital Gains Tax. The current higher rate of tax will be cut from 28% to 20% from April 2016, whilst the lower basic rate will drop from 18% to 10%. A significant reduction; and according to the Budget report released by The Treasury, this could benefit more than one million companies, large and small, across the entire country.
Although it can be said that it won’t directly affect small businesses, the Chancellor also announced a “fundamental reform” to the way companies pay their taxes. The changes are aimed at large companies who avoid paying the correct level of tax, and are aimed at indirectly benefiting small companies that “pay their fair share” through reinvestment.
The government plans on raising nearly £8 billion by altering the rules on interest. The changes include:
- The introduction of rules that will prevent multinational corporations from avoiding paying the correct amount of tax in the countries they do business.
- Ensuring that offshore property developers will be taxed on any profits they make in the UK.
- A tax on outbound royalty payments.
Many will say that this is the rabbit in George Osborne’s hat, as it certainly came as a surprise announcement. Two new tax-free £1,000 allowances were announced that will come into effect next April.
The move will greatly benefit part-time entrepreneurs, with the first allowance applying to the selling of goods or services, and the second one for income that is made on a property that you own. Examples of such services include renting out homes via Airbnb or selling items made in your own home.
These “part-time entrepreneurs” that make up to £1,000 will no longer be required to pay any form of tax on these earnings.
For the self-employed
You can’t have small businesses without entrepreneurs, and during the Budget George Osborne announced additional support for business owners.
From April 2018, the Class 2 National Insurance Contributions (NICs) that are paid by those who are self-employed will be scrapped. This means that in two years’ time, self-employed people across the UK will only be required to pay one form of tax - National Insurance Class 4, and if they are making a profit of £5,965 per year.
It is thought that this change could benefit 3.4 million people.
All systems go for new railways
We’ve all heard of HS2, but on Budget day the Chancellor gave the green light for High Speed Rail 3. This £60 million project will see the production of a new super-fast train line between the northern hubs of Manchester and Leeds.
This will greatly benefit businesses across the north by slashing journey times to just 30 minutes either way.
It was also announced that a further £80 million will be spent on the construction of Crossrail 2, which will connect north east and south west London.
The Northern Powerhouse
This was a topic that was barely touched upon during the Budget, save for the confirmation that more powers will be devolved to local mayors in Northern cities. Although we will have to wait for further announcements to learn exactly what this means, it should give regions in the North greater control over decisions such as setting business rates in the future.
Another small announcement hidden amongst larger ones, was the government stating that taxes would be cut further for small businesses that purchase properties. This will be done through a reform of Stamp Duty on non-residential properties such as office space.
As we continue our crusade to save small businesses money, it was encouraging to see so many new measures being introduced that will directly or indirectly ease some of the financial burden placed on Britain’s legions of burgeoning enterprises.comments powered by Disqus