Yesterday saw Chancellor George Osborne deliver his 8th governmental budget.
Chair of the Stockport Economic Alliance and Corporate-Commercial Partner at Gorvins, Christian Mancier reviews the impact on SME businesses in the UK, with opinions expressed from Stockport’s major accountants.
Small Business Rate Relief
One of the headline statements for entrepreneurs and SMEs to come out of the budget was the threshold increase to small business rate relief, which applies to businesses that only use one property. In a permanent move, Mr Osborne announced a more than doubling of the relief from £6,000 to a maximum of £15,000 meaning that by April next year 600,000 small business in a third of all commercial property would pay no business rates at all.
Christian: “This is very good news for SMEs who are often greatly burdened by these business rates. Remember that you have to apply to your local council for this rate relief. The higher rate band is also set to jump from £18,000 to £51,000.”
Andrew Baggott, senior partner at Clarke Nicklin agrees: “Overall, the budget was good news for private trading businesses; further reliefs for smaller entities regarding rates are very welcome.
“Hopefully these measures will maintain momentum in the SME business sector and provide additional confidence overall.”
Philip Eagle, Tax Director at Hallidays said: “George Osbourne’s 4th budget in 12 months has provided lots of new initiatives which on balance are good for small businesses.”
Nick Lowe, Tax Director at Stockport-based accountants and tax advisers, Bennett Verby, warned, “It was encouraging to see the Chancellor make a positive commitment to small businesses. The changes discussed in his speech will certainly give an extra boost to business. But he also made it clear that these rewards would only be enjoyed after Britain votes to stay in the EU.”
Paul Brown, a partner at accountancy firm HURST, says: “While acknowledging the potential for tough times ahead, Mr Osborne’s message was that the UK economy is ready to face challenges and he still had scope for some welcome surprises for SMEs and their owners.”
Entrepreneurs’ relief
Christian: “The Chancellor extended the availability of Entrepreneurs’ Relief in a surprise move. Under the existing regime Entrepreneurs’ Relief (where the gain on the sale of shares in a private limited company was taxed at an effective rate of 10%) was only available to those who held shares in a company and were also a director or employee of the company concerned. This has now been broadened to apply to shareholders who are not employees or directors in a move to encourage investment into private limited companies. This only applies to new shares issued from 17th March 2016 onwards and the shareholder concerned must hold them for 3 years before qualifying for the relief. They specifically must not be a director or employee of the company concerned.”
Andrew Baggott: “Future Corporation Tax reductions and widening the scope of Entrepreneurs Relief all help the private businesses, who are a key driver to the UK and local economy.”
Tax – Corporation and Capital Gains
The Budget in July 2015 announced a reduction in Corporation Tax, which is currently at 20%, to 18% by 2020. This has been revised and further decreased with the aim of 17% by April 2020.
Christian: “This is good news for firms in general and for the economy in attracting work from further afield, making Britain’s door firmly ‘open to business’ with Britain having one of the lowest corporate tax rates in the developed world.
“In three weeks’ time, Capital Gains Tax is to be reduced from 28% to 20%. This is the tax paid on profit. A reduction in this will be a huge benefit for investors, however, it does not apply to gains on the sale of buy-to-let properties and second homes where the Chancellor has continued his theme of making life more difficult for property investors.”
In Philip Eagle’s ‘expert tax’ opinion: “The continually changing taxation landscape makes medium or long term tax planning difficult. I think the office of tax simplification should be able to ensure that every year more legislation is removed than added. This is probably a dream to far!”
Meanwhile the tax-free allowance will be increased to £11,500 from April 2017, with the top 40% tax rate increasing to £45,000.
David Powell, Managing Partner at Booth Ainsworth called yesterday’s budget “A Budget for Entrepreneurs”.
David continued: “An extension of the 10% capital gains tax rate to a wider class of investments in trading companies is a welcome incentive to those who are prepared to inject risk capital into growing companies.
“Interestingly, the Chancellor has also reversed a restriction to this beneficial rate of tax introduced last year by now allowing it to apply to disposals to associated entities and he has backdated this change to December 2014 when the original restriction was introduced.
“It is encouraging to see the Government taking such positive steps to enable those who risk their capital to retain more of the rewards.”
Northern Powerhouse Infrastructure
The Northern Powerhouse was mentioned on several occasions in a bid to keep its momentum going after murmurings from many people in regards to the actual substance behind the slogan. Good news for the North is that the HS3 high speed rail link between Manchester and Leeds has been given the go-ahead with a view to cutting the journey time to 30 minutes by 2030, although on reviewing the detail it looks like this is an initial £60m to develop the plan for HS3 rather than the actual cost of delivering the project.
Savings
The Chancellor announced a couple of new measures for savers. From April 2017 the Lifetime ISA will be available to anyone under the age of 40 with the aim of helping those struggling to save for a house and for their subsequent retirement.
The deal is that for every £4 you save, the Government will contribute £1, just like the Help to Buy ISA. Money in the Lifetime ISA can be used for buying a house or taken out aged 60+ without penalty. Any other withdrawal is subject to a 5% penalty and you can’t use the government contribution aspect but you can put money back in again afterwards.
Christian: “The Lifetime ISA and increase in personal ISA limit to £20,000 reiterates the Government’s desire to ‘put the next generation first’. A problem that also needs to be addressed, however, is the fact that many people are struggling to meet normal day-to-day costs.”
Best of the Rest
- Fuel Duty – To be frozen for the 6th year running. Very good news for businesses and entrepreneurs who have a heavy reliance on vehicles and also for the everyday driver!
- Tax Avoidance – It’s claimed that £12 billion is to be raised from tackling tax avoidance and cracking down on royalty payments that big companies use to move money to tax havens.
- Commercial Stamp Duty – Like the changes in stamp duty that were introduced to residential property, commercial property stamp duty is to be reformed to a similar ‘slice system’. From Thursday 17th March commercial stamp duty of 0% will apply to properties purchased up to £150,000, 2% on the next £200,000 and a 5% top rate above £250,000.
Thanks go to Christian Mancier for his report and to Andrew Baggott, PhilipEagle, David Powell, Nick Lowe and Paul Brown for sharing their views and opinions.
