This is not an article about pregnancy and personal finances. It is an article about what to expect when you are expecting a budget that will outline the UK government’s plan of taxation (a fairly dry subject for most small businesses and therefore a headline which makes it a tad more interesting!)
Today on 16 March, Chancellor of the Exchequer, George Osborne, will reveal the 2016 Budget and the UK’s Small Businesses will be waiting with baited breath to find out just what measures are announced.
More than 5.3 Million Small and Medium Businesses will be affected with this year’s budget.
Over the past years I’ve commented on a handful of Budgets, Autumn Statements and GDP Reviews on BBC News and other media. I must admit, the UK Economy, the role of Small Businesses within it and government policy, excites me.
Many of my friends, associates and colleagues share this passion. But to be honest, many others don’t as they find it very time consuming and complex (especially since they are focused on growing their business).
So here is a quick snapshot of some of the key matters important to Small Business that may be a topic of this budget:
1. Fast broadband
From December 2013 to Oct 2015 (20 months) the government introduced the Broadband Connection Voucher scheme (funded by the £40M Government Challenge fund).Around 55,000 vouchers for superfast broadband connections were issued to SMEs since the scheme was introduced.
Faster Internet increases the efficiency of a business and it is no longer a ‘good to have’ but a necessity for the UK’s growing businesses to stay competitive in the 21st century. There are parts of the UK where broadband is slow and clunky which needs attending to.
2.Business rates reform
Less than four months ago I explained to BBC’s journalist Clive Myrie why business rates needed reform right after the Chancellor announced the Autumn Statement (see video below)
Business rates are charges levied to you on your business premises. This affects high street shops, pubs and cafes. And they are unfair (the reasons explained in my BBC interview above).
In a nutshell, in the 2015 Autumn Statement the Chancellor addressed the following changes to business rates:
- The Chancellor extended the small business rate relief by 12 months last November, which would help over 600,000 small firms.
- 100% (instead of 50%) of businesses with 1 property with a value of less than £12,000 will get a rate relief. This benefits one third of the pubs in the country.
- The Chancellor shared a glimpse of what business rates will look like in 2020. He suggested that local councils will set the business rates. Councils will use the amount collected to promote local businesses and support their local infrastructure. That way the money remains within the community.
Last year, the Chancellor abolished the ‘uniform’ business rates and promised a review of the business rates in this year’s budget.
Many small business owners demand that a progressive approach towards business rates be taken and to empower the local authorities to offer lower rates to new firms, regardless of the office value. This would inspire small business hubs to flourish in cities and towns around the UK inspiring the next generation of business leaders.
It remains a mystery (not for long), if business rates reforms will be announced in today’s budget.
3. Dividend Tax for business
It’s evident that the government is leaving no stone unturned to find out how they can recover more taxes to reduce the deficit. The dividend tax affects businesses that are profitable.
The dividend tax is set to increase significantly from 6 April by 7.5% for those whose dividend income is higher than £5,000. It will put greater pressures on many small business owners and is a tax on hard work and success that comes as a result of it. Many believe that such as move by the government goes against all government encouragement for British people to be entrepreneurial and would like to see a revision.
My take is that considering that the tax has just been introduced, the revision in the March 2016 budget seems less likely.
4. Office Space Solution
The government has done some good work with things like the Start Up Loans scheme to encourage new businesses – now they need to make sure those businesses have space to grow. If business rates were abolished we would have more co-working spaces which offer cost effective solutions for start ups and small business. Some popular co-working spaces in London include WeWork, Rockstar hubs, Mi Hub and Central Working.
5. Government grants and schemes
As small business owners it is important to know about the government grants and schemes available.
a) Start up loans: They are government-backed and help you finance your business through debt.
b) SEIS: The small enterprise investment scheme offers incentives to investors to provide a small firm with finance.
c) EIS: The enterprise investment scheme is for seven figure companies looking to raise equity funding.
d) Apprenticeship Programme: Aimed at providing the younger generation with needed experience and transferable skills. The Apprenticeship Programme helps businesses hire someone for a fraction of the cost. Businesses in turn need to provide them with training.
e) R&D Research Credits: Does your company invest significantly in research and development of products? If yes, this scheme helps you claim some of these costs back.
The government from time to time introduces schemes that help businesses receive training and upgrade their skills. One such successful programme has been the Government’s Growth Accelarator programme facilitated by Grant Thornton.
Keren Lerner who runs a design agency in Soho for more than a decade says “We have received a government grant for £2000 from Grant Thornton. This small amount actually kickstarted us into high level training that has transformed the way I run my business. So it’s definitely worthwhile. I have since hired a new person, let go of some overhead expenses we didn’t need and we are primed for an influx of new business from different client base.”
It helps small businesses to keep their eyes peeled for government grants and schemes as every bit helps.
6. Higher rate tax bracket
There is a potential silver lining with talks of increasing the higher rate tax bracket for personal income tax. As you may know, the first £10,500 of your salary is exempt from tax (your personal allowance), the rest is taxed 20% (basic rate) up to the sum of £42.3k and then 40% for the sums above.
This threshold will increase to £43.3k in 2017, with a pledge to raise it to £50k by 2020. Which means an extra £7,615 taxed at the lower 20% basic rate of tax rather than the 40% tax. This favours the skilled an hard working people of Britain get to keep more of their money with lower taxes.
There is talk that on this budget the Chancellor may accelerate the timing of the change. Let’s hope he does.
7. Fuel Prices, World affairs, Brexit
There is speculation that there may be a slight rate increase in fuel duty, which will affect small businesses who are in transportation and logistics. There are world affairs that influence our economy and it is to be seen what matters get the governments attention. Meanwhile, many businesses fear the EU referendum and want to know the contingency plan in place for businesses that are trading with EU in the case we do Brexit (Exit from the EU should Britain choose to manage it’s own affairs).
What I would like is a proactive budget vs. a reactive one. And so I await the 2016 Budget to unveil itself soon. Catch it live on BBC Two after the PMQs. The Budget kicks off at 12.30pm.
Hope you have enjoyed the read and/or learnt something new.
MA in Economics | SME Advisor and Business Owner
P.S. Feel free to comment below or tweet me @DarshanaUbl