The last-ever Spring Budget: The business impact

On 8 March, Chancellor Philip Hammond delivered his final spring budget. From 2017, the budget will be moving to the autumn, with a spring statement instead. The intention is to allow more time for changes to be made before the next tax year.

Key points

Here are some of the key points that were announced:

  • Growth in the UK economy picked up through 2016, and the Office for Budget Responsibility (OBR) forecasts that the UK economy will grow by 2% in 2017, at a slightly slower rate in 2018, and then up to 2% in 2021
  • Britain’s debt stands at nearly £1.7 trillion – around £62,000 for every household in the country. In 2009-10 the UK borrowed £1 in every £5 spent. This year it is set to be £1 in every £15. Borrowing is forecast to reduce by nearly three quarters by 2016-17.
  • Employment has reached a record high of 31.8 million people

How the Budget affects SMEs

Here are some of the ways that SMEs and start-ups will be affected by the recent announcements:

  • There is a cut in dividend allowance for company shareholders
  • If you are an unincorporated business with an annual turnover below the VAT registration threshold, Making Tax Digital will become mandatory in April 2019 – after that, you will have to use digital software to keep your tax records and update HMRC every quarter
  • Self-employed people will have to pay increased National Insurance Contributions to bring them closer into line with employed people. From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019.
    Update 15 March: The government has announced a U-turn on self-employed VAT, as explained in this BBC report.
  • Small businesses with minimal expenses (less than £2,000 a year) will now have to pay 16.5% under the Flat Rate VAT scheme

Rising business rates

We’ve written about rising business rates before, but here are some of the ways the Chancellor is sweetening the pill:

  • Business rates are increasing for certain sectors, especially the digital economy – but no small business that is coming out of small business rates relief will pay more than £600 more in business rates this year compared with 2016-17
  • Local authorities have been granted £300 million of discretionary relief they can use to help businesses most affected by the revaluation
  • From April 2017, pubs with a rateable value up to £100,000 will be able to claim a discount for of £1,000 on their business rates for one year

Consumer protection

Your business may be fined if you mislead or mistreat consumers. For example, if you charge consumers unexpectedly when a subscription is renewed or a free trial ends, or if your terms and conditions are too long, complicated or jargon-filled.

Investment in innovation

The Chancellor confirmed the government’s support of innovation, highlighting the Research and Development (R&D) tax credit scheme. They aim to improve awareness of the scheme among SMEs, and make administrative changes to increase the certainty and simplicity around claims.

£500 million is to be invested in technical education for 16 to 19-year-olds, with new T-levels being introduced from autumn 2019 covering 15 different subjects including construction, digital and agriculture. Students doing high-level technical courses at National Colleges and Institutes of Technology will be able to access maintenance loans from the government.

£270 million has been allocated to the Industrial Strategy Challenge Fund, to support research and innovation in:

  • Artificial intelligence and robotics that will work in extreme environments
  • Better batteries for electric vehicles that will help improve our air quality
  • Medicine manufacturing technologies to speed up patient access to drugs

£210 million will create new fellowships and programmes to attract top global talent to conduct research in areas such as bioscience and biotechnology, quantum technologies, and satellite and space technology.

£200 million is going towards local projects to build fast and reliable full-fibre broadband networks.

£90 million will provide 1,000 new PhD places, including in science, technology, engineering and maths.

£16 million is being invested into a national 5G Innovation Network to trial new 5G technology.

EIS tax relief

It has previously been indicated that the government will be reviewing existing tax reliefs aimed at encouraging investment and entrepreneurship (such as the EIS) to ensure that they are “effective, well targeted, and provide value for money”, however, Philip Hammond didn’t mention any change to Enterprise Investment Schemes at this stage.

We can only wait and see…

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How Wednesday’s budget could affect SMEs

The final Spring Budget is on 8 March. From next year the Budget is moving to Autumn, with a Spring Statement. This change gives time for tax changes to be made in advance of the tax year, and provides businesses with more time to plan, if necessary.

Forecasts are showing sharp growth with borrowing lower than anticipated, and a £45 billion tax windfall for the Treasury in the next five years. January’s tax receipts are at the highest level since 1999, but Chancellor Philip Hammond is quoted as saying: “There is no pot of money under my desk.”

In this article, we’ve compiled some of the main predictions that will impact you and your business, and look forward to hearing what is announced on Wednesday.

Business rates

According to reports, some firms face increases of up to 400% in the April business rates hike.

The Chancellor has recently indicated that he is “alive” to the impact this have on some High Street shops, and “open” about finding ways to help.

Business rates are a property tax that doesn’t apply in the digital economy, and the Government is trying to ensure that online retailers such as Amazon don’t benefit to the detriment of traditional High Street retailers.

We expect he will announce some immediate measures that will mitigate the worst effects on SMEs (such as transitional relief), with more fundamental reforms to come in the future. No additional help is expected for supermarkets and corporations.

Misleading contracts

Companies that mislead or rip off consumers are to be targeted, because Ministers want to force firms to use plain English and make key terms more obvious. If not, they face a fine.

The Citizens’ Advice service estimates that 2 million consumers per year have problems cancelling subscriptions, and research shows that 42% of people are paying for at least one subscription they don’t use, such as gym membership.

Consumer watchdog Which? found that 90% of people ticked to agree with online T&Cs in the past year but only 16% always read them. For one thing, T&Cs are often very long, for example, contracts for mobile phones can run up to 40,000 words. They also contain acronyms and legal or financial jargon that mean people don’t fully understand what they are signing.

Plans will be therefore be unveiled to fine companies that tie people into long contracts or unexpected fees in their terms and conditions.

There may also be a crackdown on rolling subscriptions that renew automatically after a free trial, with new rules to ensure consumers are offered the chance to cancel the agreement.

Science and innovation boost

The Chancellor is expected to announce a £500 million boost from the National Productivity Investment Fund, to support science and technology.

Around £270 million will be made available for pioneering projects such as:

  • Technology that operates in extreme and hazardous environments
  • Cutting-edge artificial intelligence
  • Robots for off-shore and nuclear energy, space and mining
  • Batteries for the next generation of electric cars
  • Accelerating patient access to new drugs, by developing speedy new ways to manufacture medicine

£200 million will go towards new fellowships for researchers in areas aligned to the government’s industrial strategy.

A further £90 million will fund 1,000 PhD research projects in STEM subjects (Science, Technology, Engineering and Mathematics), with extra cash for investment in 5G communications.

Brexit

British businesses are calling for economic stability during the Brexit negotiations. The Confederation of British Industry says that uncertainty dampens investment and higher inflation erodes the growth in consumer spending.

Carolyn Fairbairn, Director-General of the CBI, said: “By supporting businesses to invest, the government can promote growth at a critical time.”

Rain Newton-Smith, CBI chief economist, said: “Prioritising stability will inject further confidence in the economy now, and help boost the country’s productivity and prosperity for the future.”

Anything is possible after Article 50 is triggered at the end of March. Bigger measures are likely to be reserved until the Autumn Budget, so the Chancellor can see how the economy reacts. Meanwhile, we know he is aiming to keep a pot of money as a safety net, to ensure the country negotiates Brexit with stability.

As always, Akoni will keep you posted.

Akoni helps businesses make the most of their cash. Register for free at AkoniHub.com

Business Rates And The Impact On Companies

The increase in business rates that takes effect in April this year will see a steep rise for Small and Medium Businesses in the UK. This is already likely to present a serious problem for enterprises, and it appears the government may be forced to rethink. The negative impact on potential business growth is not welcome, particularly in light of companies dealing with various other uncertainties, which impact consumer spending, as well as considerations for future development and growth plans. SME’s account for 99% of all private sector businesses and are crucial for economic growth in the UK. Many of these may be impacted to the point of threatening their ongoing livelihood.

It is true that some businesses will experience small falls in business rates, among them giants such as Amazon and ASOS. About a third, however, will see sharp increases, some of them even expecting an immediate rise of 40%.

“The Federation of Small Business is warning that half of those facing hikes, will reduce, postpone or cancel investment, with nearly a fifth considering closing down or selling up.”

Based on the current economic climate, and with multiple uncertainties including Brexit, our team at Akoni are hopeful that the government will complete a full review prior to implementing any further policies that could negatively impact businesses.

Article from BBC News @BBCNews

Written on 27 February 2017

http://www.bbc.co.uk/news/business-39098801

Akoni helps businesses make the most of their cash. Register for free at AkoniHub.com