SMEs are the backbone of the UK economy and helping them is seen as imperative as Britain prepares itself for life outside the European Union.
After last March’s Budget was seen as an attack on small firms and the self-employed, today was chance to win them back over.
Emma Jones, founder of small business support group Enterprise Nation, said: ‘This was a solid budget with a strong emphasis on the Industrial Strategy, technology and R&D – and getting the UK into good shape for Brexit and beyond.
‘This is what we’ve been saying for a while should be the role of Government when it comes to enterprise creation and support; build the right environment and conditions for businesses to prosper and thrive, and then let businesses do what they do best.’
We look at what happened below.
After upping the tax burden for SMEs by hiking flat-rate VAT to 16.5 per cent in last year’s Autumn Statement, the Chancellor finally deliver some good news on this front.
Befitting a Budget speech littered with attempts at humour, the Chancellor teased a reduction in the turnover level above which a business must enter the VAT system before pledging not to do so.
The threshold below which firms don’t need to register will remain at £85,000 until at least 2020. It remains one of the highest in the world, except for Singapore and dwarfs the EU average of £20,000.
HOW THIS IS MONEY CAN HELP
This goes against recommendations made by the Office of Tax Simplification in its recent review of VAT. It said in the dossier that reducing the figure to £25,000 could raise as much as £2billion each year for the Exchequer, by bringing as many as 1.5million small businesses into the system.
Mike Cherry, national chairman of the Federation of Small Businesses, said: ‘It was good to see the Chancellor’s speech acknowledge our concerns about the VAT threshold.
‘Dragging thousands of more small firms into the hugely complex VAT regime would have caused a significant drag on output at an already challenging time for businesses.’
Chancellor Hammond also heeded to calls to scrap the near four per cent rise in business rates due next April by announcing a switch in the inflation measure used to calculate the rates each year from the RPI to CPI from April 2018 – two years earlier than originally planned.
Other notable announcements
The government will consult on how to tackle IR35 non-compliance in the private sector. It said it will draw on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.
National Living Wage
The National Living Wage will rise by 4.4 per cent from £7.50 an hour to £7.83.
The government will legislate to extend HMRC’s powers to make all online marketplaces jointly liable for VAT to ensure that sellers operating through them pay the right amount of VAT.
CVS, the business rates specialist, had predicted the RPI inflation formula would have added an extra £781million in bills over the next two years compared with the lower CPI measure.
What’s more, to avoid a repeat of the turmoil caused by the first business rate revaluation in seven years early this year, the Chancellor announced a cut in revaluation periods from five to three years. This change will come into effect after the next revision.
The Chancellor also called time on the so called ‘staircase tax’ which hits businesses in England and Wales with offices in communal blocks business rates based on how many rooms are being used and how they are linked.
The government will legislate retrospectively so that businesses hit will have original bill reinstated.
Enterprise Investment Schemes
A change in the rules on these, often abbreviated to EIS, were widely tipped ahead of the Budget, but few could have predicted what actually came to fruition.
The Chancellor announced the current EIS investment limit will double for people investing in knowledge-intensive companies. This will unlock an addition £7billion of growth investment, he claimed.
This means the generous 30 per cent income tax relief, as well as capital gains tax savings, is now afforded to investors of eligible EIS schemes on investments up to £2million each year – up from £1million.
In recent consultation paper on patient capital, the dossier, the Treasury said majority of EIS investment funds had a capital preservation objective in tax year 2015/16, which, if true, runs contrary to the purposes of issuing tax breaks.
But the government said it will introduce a new test to reduce the scope for and redirect low-risk investment.
Anil Stocker, co-founder and CEO, of MarketInvoice, said: ‘Doubling the Enterprise Investment Scheme limits for innovative companies will encourage even more private investment, the government now needs to simplify the EIS rules.
‘Investing in EIS has been encouraged by successive governments to raise funds for many small, unlisted businesses who attract around £1.6bn a year.
However, it wasn’t all good news for EIS as Mr Hammond confirmed the type of companies that could be invested in will be restricted. As ever, the devil will be in the detail but properly targeted, this could encourage private investment in innovation.’
Research and development
Young enterprises involved in the research and development spaces are among the biggest winners following the Autumn Budget – the first in 21 years.
The government will ring fence an extra £2.3billion of its funds for investment in research and development. It also upped the main tax credit affording for young firms operating in the space from 11 per cent to 12 per cent.