Small to medium sized business owners have reacted positively to George Osborne’s recent Budget announcement, particularly with regards to the changes to business rates. In his eighth budget the Chancellor of the Exchequer has referred to the most recent reforms as: “a budget that backs businesses”.
He announced a number of changes to help SME’s and the self-employed, including amendments to the business tax system, rate relief and support for the UK’s infrastructure.
Business Rates
Business rates are charged on most non-domestic properties with the rates based on property rental value, rather than a businesses turnover. A number of entrepreneurs have argued that this approach wasn’t suitable for the digital age where retailers with a physical presence, were often taxed more heavily than online retailers.
In a bid to support small and medium sized businesses, companies that occupy a property with a rateable value of £12,000 or less, will pay no business rates at all, helping an estimated 600,000 small firms. He also increased the higher rate from £18,000 to £51,000
Corporation tax
In a change that will also benefit larger organanisations, corporation tax will be to cut from 20% to 17% by April 2020, benefitting approximately one million companies throughout the UK.
The reduction in corporation tax is expected to have a transformational effect on startups, entrepreneurs and scale-ups, encouraging the reinvestment of additional profits to create new jobs, while inspiring new entrepreneurs to take the first step in starting their own business.
Tax Allowances & NI Contributions
- From April 2018 the self-employed will no longer have to pay class 2 national insurance contributions.
- The threshold for paying income tax is to be raised to £11,500 by 2017.
- The threshold for paying the higher rate of tax will also be raised from £43,000 to £45,000 in the tax year 2017/18.
- Higher earners, originally paying 40% tax on income over £42,385, will benefit from the threshold rising to £45,000.
Announcing a further tax break for the digital age, Mr Osborne unveiled two new £1,000 allowances for micro-entrepreneurs. For people who use web sites like Airbnb to rent out rooms and supplement their income, there would no longer be any tax forms to complete and no tax to pay, positively effecting 500,000 people in the UK.
Capital Gains Tax
Investors in the UK market received an additional boost with the reduction of capital gains tax from 28% to 20%, and the basic rate falling from 18% to 10%. This doesn’t extend to residential property but will include the sale of equity in businesses. The change will be effective from the start of the new tax year in April and will undoubtedly incentivise more people to start, scale up and then sell their own business.
Entrepreneurs’ Relief will also be extended in an attempt to encourage investors to back unlisted companies, with an additional £10m of relief on top of the existing limit.
Infrastructure
The go-ahead has been given to a high-speed line between Leeds and Manchester in order to reduce journey times from 50 to 30 minutes. No doubt part of the governments plans to continually support and promote the “Northern Powerhouse”. Mr Osborne also announced an additional £161m to turn the M62 into a four-lane motorway.
Stamp duty
The government also announced its plans to introduce a zero rate band for commercial stamp duty. The new rates will start at zero for any property up to £150,000, 2% between £150,000 and £250,000, rising to 5% for costs over £250,000.
Coupled with the reduction in corporation tax, business rates and capital gains, the new budget has been welcomed news for UK businesses and entrepreneurs.
