In the April issue of Sussex Business Times, we provide you with a run down of the main budget announcements made at this year’s Spring Budget
On Wednesday 8th March, the Spring Budget – the first of two budgets in 2017 – took place. As the UK begins the formal process of exiting the European Union, the Chancellor of Exchequer, Philip Hammond again announced his plans for the UK economy.
So what were some of the main points announced for businesses?
As for the state of the economy as a whole, the ongoing EU referendum situation has caused deliberation and uncertainty for quite some time now. Despite this, the UK was the second-fastest growing economy in the Group of 7 throughout 2016, and a further 650,000 people are expected to be in employment by 2021. Growth forecast for 2017 has been upgraded from 1.4% to 2%, and an annual rate of inflation is forecast to rise from 2.3% to 2.4% in 2017-18 before an expected fall to 2.3% and 2% in the years following.
The largest single change affecting businesses from April 5th has been announced – one we have touched upon recently in Sussex Business Times. The new Apprenticeship Levy will be charged on firms with total annual payroll in excess of £3 million. In fact, those not obliged to pay this new Levy are the ones most likely to benefit by achieving a reduction in their training costs. The Government has pledged to pay 90% of apprenticeship costs for small businesses.
With regards to the education sector, increased technical training will be welcomed by business. However, one of the throwaway comments made in the Budget speech was for a compulsory three-month ‘quality’ secondment – if this goes ahead, it will have a cost effect on business, and questions still remain: will businesses be able to use the Apprenticeship Levy to cover these costs? Is there capacity for businesses to take on 630,000 students each year?
It also came to light that the Making Tax Digital start date for businesses with a turnover below the VAT threshold has been delayed. Those with a turnover between £10,000 and £83,000 will now not be required to report digitally until 6th April 2019, which is news that will be welcomed by smaller businesses, the self-employed and landlords.
Rate relief will be 100% from April 2017 based on a rateable value of up to £12,000, tapering to £15,000, which will benefit those where property values have risen the most. However, the overall revenue take of the latest revaluation, which is based on 2015 property values, is not altered, meaning some will still face significant rises, mainly in London and the South-East. As for allowances, the new dividend tax-free allowance of £5,000 is to be reduced to £2,000 from 6 April 2018. The personal allowance is to be increased by more than inflation causing it to rise by £500 to £11,500.
Of course, many more points were announced last month, just some of which including measures to tackle abuse of overseas pension schemes; an additional £100 million to place more GPs in A&E departments for next winter; an extra £2 bullion for social care over the next three years and funding of £5 million to support people returning to work after a career break, but what we really want to know is what businesses themselves thought of the Spring Budget…
Here, Sussex Business Times caught up with Sussex businesses to find out their thoughts on this year’s announcements…
Paula Joyce, Tax Manager at Sheen Stickland: “Small businesses were hot on the agenda for this budget with an emphasis on how the self employed are taxed differently to those in employment. Historically the self employed have benefited from lower national insurance rates, however this reflected the reduced entitlement to state benefits and accrued pension on retirement. In addition it represented the risk that small businesses face compared to the security that employment can provide.
“Whilst the new state pension regime has increased the entitlement to pensions for self employed workers, the increase in national insurance contributions will impact most small businesses immediately, and it may take many years before they see the advantages at retirement age.
“Those operating within owner managed limited companies will also be affected by the reduction in the dividend allowance. Dividends have long been a tax efficient way in which shareholder/directors can remunerate themselves. However whilst dividends will continue to attract lower rates of income tax, careful forward planning will be essential to ensure that the impact of this change can be prepared for.”
Jason Kitcat, Head of Policy & Public Affairs, Crunch Accounting: “The Chancellor is planning to raise tax from the self-employed and small businesses without any consultation. What’s more, he’s doing this before the Taylor Review has even completed its work. Promising to consult on increased parental support for the self-employed is welcome, however. We recommended such an approach in our recent research and report with the RSA: ‘The Entrepreneurial Audit’. The UK’s self-employed, and small business owners, would be more open to discussing hikes in National Insurance and cuts to dividend tax allowances, if they had been explicitly presented alongside additional rights and protections.
“The Chancellor failed to address the growing concern over the rushed changes to IR35 in the public sector, and the VAT Flat Rate Scheme ‘limited cost trader’ test. This was a missed opportunity. Now is absolutely the right time to be reconsidering tax and welfare in light of the changing world of work, but it needs to be done collaboratively and carefully.”
Jonathan Riley, Head of Tax, Grant Thornton UK LLP: “The Chancellor is rightly concerned about the growing tax gap between those in employment and those self-employed, or using service companies. He sought to close that gap by increasing the Class 4 National Insurance Contribution (NIC) rate by 1% in 2018 and a further 1% the year after. There will still be a gap between different types of worker – employees will still pay 12%. But this isn’t the big shock some see it as – the NIC rate will still be only 2% for earnings of self-employed over £43,000 a year.”
Lorna Sizer, Senior Manager Personal Tax, Knill James Chartered Accountants: “The dividend allowance has been with us for less than a year and it is already being tinkered with. Currently dividends of £5,000 can be received tax-free but this allowance is going to reduce to £2,000 from April 2018, increasing the tax bill on dividends by up to £1,143 each year. Alongside the 7.5% increase in the tax rates on dividends, which was introduced last April, the tax saving by receiving dividend income will be eroded still further. Whilst this affects owner of shares, it is those running their own business through a Limited Company who will feel the pinch the most. Other investors have the opportunity to use ISAs to hold their investments and so not have to pay income tax on any of the dividend income.”
Lucy-Rose Walker, CEO, Entrepreneurial Spark: “Increasing National Insurance rates for the self-employed could be a further step by the Government to penalise those who are taking risks and starting a business, often giving up their regular pay cheques to take a chance at creating something great. We believe there should be more, not less, support for entrepreneurs who are starting and scaling businesses. Removing the few remaining incentives of being self-employed is counter-intuitive and will lead to fewer enterprises and consequently fewer jobs.”
Nick Gross, Chairman, Coffin Mew: “While, as budgets go, Philip Hammond’s 2017 Budget appears fairly tame, there are a number of points of interest for those involved in the transport and logistics sector.
“A freeze on vehicle excise duty for hauliers and HGVs will, I’m sure, be welcomed by many, as will plans for a £220 million transport fund for national roads and a £690 million fund to tackle urban congestion. Mr Hammond further announced an additional £270 million for disruptive technologies, such as robotics and driverless vehicles, something that further cements the government’s intention of keeping Britain at the forefront of developing driverless technology.
“It’s also important to note what was not mentioned. Specifically, Mr Hammond made no comment on the expected introduction of a diesel scrappage scheme. Whether this means that the idea has been parked, or not, we will have to wait and see.”
David Jinks, Head of Consumer Research at ParcelHero: “Britain is at the forefront of technology when it comes to logistics and courier services. Parcels are being delivered by drone in Cambridgeshire, droids are delivering packages in London streets and driverless vans are being trialled in Greenwich. Britain and the US are streets ahead of the rest of the Western world when it comes to e-commerce and delivery innovation; and this money will help ensure we stay ahead of the curve.
“What we need to see is a plan for the High Street and e-commerce to grow together; and technology, sensible taxation policies and more flexible planning regulations will help ensure this takes place.”