The Budget: what does it mean for small businesses and the self-employed?
The dust is settling on another Budget Statement from the Chancellor of the Exchequer. While the headlines are dominated by politics, small businesses and the self-employed are looking to get the facts. Here’s our guide to get straight to the bits that really matter.
Consultation on IR35
Of utmost importance to contractors and the self employed, there will be a review of the way tax and National Insurance is considered for contractors and agency workers. Changes to the current rules – known as IR35 – could mean those workers are taxed as though they were regular employees. Critics fear the move might cause contractors to lose money, and that it would add more administrative burden onto SMEs. The Government will conduct a consultation on off-payroll working and publish its results in 2018.
VAT Threshold for small businesses
Philip Hammond’s Budget was as important for what it didn’t include as what it did. Small businesses feared the VAT registration threshold would be lowered from the current figure of £85,000, and so start applying to more small firms. This came after the Office of Tax Simplification recommended the level should fall, bringing it more in line with other countries. In Germany, for example, the level is £15,600. However, after lobbying by business groups, the Chancellor kept the threshold at the current level - albeit only extended for another two years.
What they’ve said about the VAT Threshold:
Federation of Small Business chairman Mike Cherry said: “Around 1.5 million modest-earning small firms and the self-employed will be relieved that we have seen off a VAT tax grab that would have caused huge economic damage.”
Changes to business rates
The British Chambers of Commerce had called for a halt to business rate rises in the lead-up to the Budget. While these were not reversed, the Government did announce that it would bring forward changes in the way business rates are calculated. These rates will - from April 2018 - be calculated using the consumer price index (CPI) rather than the retail price index (RPI), which tends to be higher. The change was originally due in 2020.
What they’ve said about the business rates changes:
PriceWaterhouseCoopers’ Head of Rating - Business Rates Phil Vernon said: “This will save businesses an estimated £2.3 billion over the next four years. However, this will still mean an increased rate bill of 2.8 per cent for many due to rising inflation.”
The new personal allowance
The personal allowance – the amount workers are allowed to earn before they pay income tax – is rising from £11,500 to £11,850. The high-rate tax threshold will also rise from £45,000 to £46,350, and it’s planned this will reach £50,000 by 2020. Sole traders need to be aware of these figures as they pay income tax on the earnings of their business.
Another fuel duty freeze
Businesses will be acutely aware of the cost involved in running vehicles – and the Chancellor chose not to add to that cost by freezing fuel duty. This was the eighth year in a row in which the duty was frozen.
What they’ve said about fuel duty
AA President Edmund King said: “Any proposed increase in fuel duty would have hampered small and medium businesses, as well as ordinary drivers.”
Road tax for diesel vehicles
The Government has taken a tougher stance on diesel vehicles – but included measures in the Budget to try to protect businesses. New diesel cars that fail to meet emissions standards will be hit by a rise in vehicle excise duty from April next year. Company car tax will rise one per cent for those with diesel models. However, this does not mean there’ll be a tax rise for existing diesel car drivers, and the Chancellor also vowed to protect van owners - a move made with businesses in mind.
Increase in the National Living Wage
From April 2018, the National Living Wage (NLW) will rise 4.4 per cent from £7.50 to £7.83 for people aged over 25. Businesses need to be aware of the new minimum rates to pay their staff. The new list - by age group - is as follows:
- Apprentices: £3.70
- 16-17: £4.20
- 18-20: £5.90
- 21-24: £7.38
- 25 and over: £7.83
End to inflation allowance for Corporation Tax
The ‘corporate indexation allowance’ will be frozen from the beginning of January. This relief allows businesses to offset inflation against any chargeable gains they make. The Government says this brings the UK in line with other countries – but businesses say it might result in companies paying more Corporation Tax, despite the fact that the rate is set to remain at 19 per cent.
VAT from online marketplaces
Many small traders might feel they have an unfair playing field when it comes to competing with online businesses. With this in mind - and to cut down on online VAT fraud - the Chancellor announced plans to make the likes of eBay and Amazon jointly liable – along with sellers – for VAT in the same vein as traditional retailers.
As ever, the Budget Statement has given companies and self-employed people plenty of food for thought.