This week, Philip Hammond (or ‘Fiscal Phil’ if his self-given nickname sticks) delivered the 2018 Budget.
The speech revealed cuts to business rates, a ‘digital levy’, and even tax relief for public toilets, but what do these changes mean for SMEs? We consider the implications of the budget for small businesses.
Business rate cuts
The Treasury announced £900 million of business rates relief for nearly 500,000 SMEs.
The tax cuts are targeted at small retailers with premises that have a rateable value of £51,000 or less. When the new rules come into fruition in April next year, it is expected that the initiative will benefit 90 per cent of the country’s small shops and could reduce their bills by up to a third.
The reform comes after a gruelling year for the British High Street which has seen numerous store closures and job losses. The Director General of the British Chambers of Commerce (BCC), Dr Adam Marshall, welcomed the cuts:
“In an atmosphere of unprecedented uncertainty and heightened political noise, the Chancellor has demonstrated that he is listening to business concerns by delivering a Budget that supports investment and growth.
“The Chancellor responded directly to the BCC’s calls for bold incentives to turbo-charge business investment, [and] for steps to support high street businesses struggling with business rates.”
High Street investment
In addition to business rates relief, Hammond revealed a £675 million fund to boost town centres.
The Future High Streets Fund will be used to ‘help local high streets evolve and adapt to [shopper’s behavioural] changes’. The fund aims to support local authorities in renewing and reshaping their town centres through developing long-term strategies and investing in infrastructure, such as transport links, workspace and places for leisure.
The Chancellor also announced that the government would be looking into planning regulations to allow for underused retail space to be converted into homes, and urged councils to work with local builders and developers to reinvigorate ‘wasted space’.
This investment could be good news for retailers in lack-lustre town centres where regeneration could increase footfall, and indeed, for builders who can capitalise on the construction jobs created.
VAT thresholds unchanged
The Budget established that Value Added Tax (VAT) would remain unchanged at £85,000 until April 2022.
Philip Hammond ended speculation that the VAT registration and deregistration thresholds would be lowered, saying that the freeze would ‘give businesses certainty’.
This news will be appreciated by many small companies. Mike Cherry, National Chairman of The Federation of Small Businesses, commented: “On the tax front, small firms up and down the country will be pleased to see the VAT threshold frozen for two years. [Decreasing the threshold] would have created a mountain of bureaucracy and a tax-hike for more than a million businesses. I look forward to seeing further innovative changes to VAT post-Brexit.”
Taxes for private contractors
The Chancellor announced that the stricter tax rules for ‘casual workers’ enforced in the public sector will be extended to the private sector.
From April 2020, the IR35 framework will mean that independent contractors whose working pattern is deemed to be like an employee's will have to pay more tax and national insurance. The change will also see large and medium-sized firms having to make a national insurance contribution for these workers for the first time.
The change has been met with disdain from many of the self-employed community. It has been claimed that freelancers could lose up to 25% of their income, and that the move will increase administrative burdens, preventing people from working dynamically.
Building housing
Fiscal Phil also pledged an additional £500 million to be spent on building housing. This brings the housing infrastructure fund up to £5.5 billion and it is hoped that the additional money will allow 650,000 new homes to be constructed.
Hammond also announced strategic partnerships with 9 housing associations, which he claims will “support the revival of SME house builders.”
Digital services tax
Small technology companies can breathe a sigh of relief as it was confirmed the digital services tax will only be imposed on those generating over £500 million a year in global revenue.
The new digital services levy will be introduced in April 2020 and is expected to be a 2% tax rate against UK sales made by large social media platforms, search engines and online marketplaces. The charge will target ‘established tech giants’, such as Amazon, Google and Facebook, and is designed to ensure digital platform companies contribute to the UK economy if they are trading there.
This is a positive step towards making tax contributions fairer for all businesses, but the government must be careful not to repress innovation and investment in the UK from start-ups.
Apprenticeship fees
The 10 per cent fee that small firms pay when they take on apprentices has been halved to five per cent.
The reformed levy, alongside other improvements pledged by the government, means a £695 million package will be available to businesses taking on apprentices. Hammond promised that vocational training programmes would ensure that British workers were equipped with the skills they need to succeed at work.
While some critics of the reform say it doesn’t go far enough, the reduction in costs associated with apprenticeships is encouraging. According to Close Brothers research, two fifths of SMEs are investing in training to help fill skills gaps and a further third say that they have considered staff training but can’t afford it. This initiative could help increase the number of adequately skilled staff available to SMEs.
Freezing costs
As well as the major announcements in his speech, Hammond also confirmed that several duties would be frozen. This included freezing fuel duties for the ninth year in a row, and freezing duties on beer, cider and spirits until 2019.
This decision will benefit a variety of different companies, from pubs and restaurants to haulage and logistics firms.
In reaction to the 2018 Budget, David Thomson, Chief Executive of Close Brothers Invoice Finance said:
“The 2018 Budget offered many small businesses many reasons to be optimistic about the future. The cut to business rates for premises under the £51,000 rateable cap is particularly welcome, as is the continued freeze of VAT and the threshold on the digital service tax. These initiatives highlight the government’s ongoing support for growing businesses and should go some way to helping SMEs on the High Street and beyond.
“Small businesses make a valuable contribution to the UK economy, and it is essential that SME owners feel supported by the government, especially in uncertain times such as this.”
