The Autumn Budget 2017 - Where does that leave small businesses?

  • by Carole Jordan
  • 27 Nov, 2017
autumn budget 2017 businessheads accountant consultant brighton

The budget announcement continues to be a ‘laugh a minute’ as successive chancellors take the opportunity to present their comedy chops and ridicule the opposition whilst the house of commons roars like a herd of asses’. This year there were a lot of ‘long economiky words’ and a promise of ‘maths for everyone’ amongst other gags.

But what does it all mean for your business?

Thankfully there were no nasty surprises in the budget announcement but it’s clear the chancellor has small businesses on his mind. There are four major issues which will be subject to consultation. 

  • The VAT registration level -  There are a lot of suppliers to consumers who stop growing at the £85,000 registration level to avoid either having to increase their prices or reduce their margins. Someone in the treasury believes they can raise more tax if they lower the threshold , however, after responses from business organisations this is being considered again.

  • Sole trader national insurance - The ‘self-employed stamp’ (Class 2 NI) will be abolished but this has been delayed to April 2019 while the treasury consider how to deal with the knock on effects of this. It seems they may choose to increase the profit related national insurance (Class 4 NI) not just to replace the lost £153.40 but, as mentioned in an earlier budget, take the opportunity to increase the Class 4 NI from 9%. This is because the benefits attached to payment of it are more closely aligned with those always enjoyed by employees who pay 12% (Class 1 NI).

  • Contractors - From April 2017 public sector contractors were subject to new stricter rules of interpretation and their employment/self-employment status determined by the public authority. This led to many being treated as employees for tax and NI. There are now plans to consider extending this into the private sector!

  • MTD. That’s Making Tax Digital -  In July 2015 George Osborne, then Chancellor of The Exchequer announced they were ‘ abolishing the tax return ’. Of course, it was nothing of the sort and and he was referring to the plan to make businesses do returns online, quarterly, in detail. This is still progressing but has been delayed to April 2019. For most of our clients, who tend to use accounting systems, if not cloud accounting this doesn’t present a challenge, just a nuisance as deadlines will be imposed along with penalties for missing them.
We’ll keep you up to date with developments on the above as we hear about them. Meanwhile….

Looking forward to 2018/19, let's start with the good news...

Enterprise Investment Schemes & Venture Capital Trusts -  If you are a ‘Knowledge-intensive’ company as opposed to a ‘low risk opportunity’ (both terms yet to be defined) then your total funding which can be through Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) is extended to £10m.

Equity Investors can benefit by an increase of EIS and VCT to £2m where the excess over £1m is invested in higher risk companies.

Small Business Rates –  The increase in valuations has been causing problems for some businesses and there have been some changes to reduce those. There will be a change in the valuation method and more frequent valuations to smooth future increases as well as a discount for pubs and some funds to councils to mitigate exceptional circumstances.

Buy to let landlords - May now officially claim 45p per mile in their accounts for journeys to and from their properties for management purposes. (This has been accepted informally for many years.)

Tax relief on energy bills -  Purchase of energy efficient and environmentally beneficial water equipment attracts a special rate of tax relief when the purchasing company is making a loss. This will be amended to be 2/3rds of the Company Tax Rate (which is reducing) and will remain in place until March 2023 rather than March 2018 as originally planned.

Employee benefits -  Free use of employer electricity to recharge employees’ electric cars will not be taxable as a benefit.

VAT when selling online - Online market places will be held jointly liable for unpaid VAT where they know or should have known that the trader should’ve been charging VAT. It will be necessary to show your VAT registration number online if you sell through these platforms. This will allow for better control over not just UK businesses but overseas businesses and should provide a level playing field for UK traders compared to overseas’.

Digital businesses –  UK Companies will be subject to tax on royalties charged against their sales where the cost comes from a an offshore company in a low tax jurisdiction. This is not likely to affect small online businesses and is designed to capture tax avoidance by global operators. This has been termed ‘The Google Tax’ by our ever-inventive media.

And now the downside...

Dividend Tax - From April 2018 the zero-rate band for dividends will reduce from £5,000 to £2,000. 

Indexation relief - Given to companies on the sale of properties and some investments will be frozen as at 31st December 2017. See our blog here… 

And, depending upon your point of view… 

Tax bands and allowances - Other than the dividend allowance, will increase by RPI as usual. They will be summarised in our Tax Card which will be available during January.

VAT Registration –  The threshold will be frozen at £85k for at least two years.

Taxable benefits -  Will rise by 1% for Diesel cars and other car and van benefit taxes will increase as normal by RPI. 

The National Living Wage -  Will increase to £7.83ph from April 2018.

And just for clarity...

R&D Tax Credit -  Has not changed for small businesses; there is an increase in the rate for the main scheme which is for businesses with turnover over £100m. The R&D Tax relief for SMEs is already more favourable than that for big business.

 

I see the budget as a positioning statement by the government. They are looking to make some quite serious changes to small business tax, as they have done since 2015 but they are conscious that 50% of employment generated comes from those businesses. I hope too that they recognise that small business owners are families and not the faceless, tax avoiding organisations, as seems to have been part of the rhetoric lately.

You can keep up to date with all things budget on our Budget resource page !

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