Autumn Budget and how it affects small businesses
After the Spring Budget, which was seen by some as an attack on small firms and the self-employed, this week’s Autumn Budget made amends by looking to encourage small and medium-sized businesses (SMEs).
The general consensus is that the Budget focused on getting the UK into good shape for Brexit and beyond with measures that focused on industrial strategy, technology and R&D. However, some question whether the Budget went far enough for businesses.
The first bit of good news for SMEs was on VAT. The recent review by the Office of Tax Simplification recommended reducing the VAT threshold below which firms don't need to register from £85,000 to £25,000, thereby raising around £2billion each year for the Treasury by bringing up to 1.5 million SMEs into the net. However, the Chancellor pledged not to reduce the turnover level.
There was good news too on business rates, with the Chancellor scrapping the proposed the near 4% rise in business rates scheduled for next April by announcing a switch in the inflation measure used to calculate the rates each year from RPI to CPI. This will come effect from April 2018, two years earlier than originally planned.
Another announcement will benefit many entrepreneurs and SMEs. As widely trailed, the Chancellor did change the rules relating to Enterprise Investment Schemes (EIS) but in a good way. Pre-budget talk was all about the curtailment of tax breaks in venture capital trusts (VCTs) and enterprise investment schemes (EIS). Instead, the Chancellor doubled the amount of investment allowed in the schemes.
The current maximum annual limit is £1m, but this will now be doubled for investments in companies that are defined as 'knowledge intensive'. In addition, the amount of investment that that such high-tech and potentially high-growth firms can receive through either an EIS or VCT has been doubled to £10 million.
However, the government is determined to prevent EIS investment allowances being used for investments in low risk companies and a new 'risk to capital' test will be introduced to ensure that tax reliefs in EIS, VCTs and also newer seed enterprise investment schemes (SEIS) are only used for genuine growth companies where there is much greater risk for investors.
The Chancellor also offered help to innovative young companies involved in R&D and new technology. An extra £2.3bn of funding was confirmed to help develop products and technology and a one per cent increase in R&D tax credits to 12% was also announced at an estimated cost to the Treasury of £755m by 2022-23. The aim is to support the raft of tech and digital companies that the Chancellor believes will from the backbone of the global economy of the future.
In addition, a £2.5bn pot aims to help encourage pension funds to invest in smaller businesses. The government's 'patient capital review' aims to address the lack of long-term investment in start-ups, and part of that process will be the creation of a £2.5bn fund from the government-backed British Business Bank which will be drawn from UK pension funds. The Chancellor said the government will work with the Pensions Regulator to establish clear rules on investments in this space.
Elsewhere, the National Living Wage will rise by 4.4% from £7.50 an hour to £7.83 and the government is looking at how to tackle IR35 non-compliance in the private sector.
For more information on the Autumn Budget and how it impacts upon your business, contact Kellands Corporate.