Chancellor George Osborne delivered his Budget yesterday, and used the opportunity to appease small businesses, whose support is essential in the run-up to the EU referendum. Here are the key measures that will impact small and medium-sized businesses:
The threshold for small business rate relief has risen to £15,000, with the higher rate increasing from £18,000 to £51,000. This will mean 600,000 small firms will pay nothing at all.
From April 2018, self-employed people will no longer have to pay class 2 national insurance contributions. The income tax threshold is to rise to £11,500 by next year, as will the higher tax rate – to £45,000 in 2017-18.
Mr Osborne extended entrepreneurs’ relief to external investors in unlimited companies, and announced a clampdown on VAT avoidance by overseas companies, in order to create a more level playing field.
Corporation tax will be cut to 17 per cent by April 2020, which could benefit up to one million firms.
The top rate of capital gains tax will fall from 28 per cent to 20 per cent, with the basic rate slashed from 18 per cent to 10 per cent – including business equity sales – from the next tax year beginning in April.
Extra investment in the rail and road network was announced. This includes £161 million to improve the M62 and a further £75 million to make northern roads better. High Speed 3 was approved, which is expected to cut journey times between Leeds and Manchester to 30 minutes. London’s Crossrail 2 was also given the go ahead.
The chancellor committed an extra £700 million for flood defences, and maintenance spending will increase to £40 million per year. This will be paid for by a rise of 0.5 per cent in insurance premium taxes.
Duties and tolls
Fuel duty is to be frozen at its current rate, while the Severn River crossing tolls will be halved, with the Treasury set to review their complete abolition.
Reforms to the commercial property stamp duty system will see business properties below £150,000 exempt. Property of a value between £150,000 and £250,000 will be subject to 2 per cent stamp duty, with a top rate of 5 per cent payable thereafter. It is estimated that 90 per cent of businesses will pay the same or less as a result.
Announcing that the Office of Budget Responsibility had adjusted down its growth forecast for the next five years, Mr Osborne predicted that the economy will grow by 2 per cent this year, by 2.2 per cent next year, and by 2.1 per cent in the following three years. But this, he said, was dependent on the UK staying in the EU.
Devolution in areas to include East Anglia, the west of England and Greater Lincolnshire will give local leaders more autonomy to drive economic growth in their region. Local Enterprise Partnerships (LEPs) to support these will include a dedicated small business representative. London will also retain 100 per cent of business rates.
FSB welcomes measures for SMEs
Responding to Chancellor George Osborne’s 2016 Budget, Mike Cherry, policy director at the Federation of Small Businesses, said: “In a Budget constrained by both the need to reduce the deficit and the economic outlook, the Chancellor has listened to our calls for the tax system to be made simpler for small businesses and the self-employed and taken important action on business rates.
“In particular, our members have campaigned hard to make small business rates relief permanent, and expand it – and the Chancellor has heeded our calls, taking many small firms out of the system altogether.
“The combined measures announced on business rates – the single biggest tax cut in today’s Budget – will be viewed by our members as a welcome and important step on the road to fundamental reform. In addition, online retailers will benefit from steps to secure a level playing field for smaller online businesses on VAT.
A ‘boost’ for small business confidence
“Freezing fuel duty will be universally welcomed by small businesses right across the country.
“Furthermore, the new devolution deals, alongside increased investment in roads, rail, and flood defences, should give a much needed boost to the UK’s infrastructure.
“Altogether, these measures should help to drive productivity and boost small business confidence levels, which have faltered recently in the face of a number of domestic policy and global economic challenges.”