During the weeks leading to the announcement of the 2016 UK Budget, there was much expectation among SME owners given that their interests had been largely overlooked during the previous year.
Following the Chancellor’s announcement, expectation gave way to a sense of relief, since many of the new measures contained in this year’s Budget have been specifically created to support SMEs.
What follows is a summary of the key changes that the 2016 Budget will bring about and an overview of the advantages and disadvantages implied in the new measures.
UK Budget 2016: The good news
Business rate relief threshold increased: traditionally, business rates are one of the biggest gripes for owners of small and medium-sized businesses. Over the years, the UK executive has launched a series of initiatives that aim to minimise the financial burden represented but business rates, such as exemptions for companies setting up in Enterprise Zones. However, this year’s Budget brings about a significant change that will benefit SMEs nationwide and not only those who are based in designated areas.
The 2006 Budget has raised the threshold for small businesses looking to qualify for 100% business rate relief. The new exemption threshold is £12,000 for the basic rate (100 per cent increase over last year) and £51,000 for high rate payer (a significant 183 per cent increase). It is estimated that more than 600,000 small business will benefit from this new measure. Overall, British SMEs will save a combined £7 billion a year.
The main corporation tax rate remains the same at 20 per cent, but it is expected to go down to 17 per cent within the next 4 years. The 20 per cent rate applies to all profits derived from business activities with the exception of ring fence profits.
Capital gains tax reduced to 20 and 10 per cent (higher and basic rates respectively). This reduction will benefit investors or SME owners who may be looking to dispose of certain assets by allowing them to keep a higher percentage of the sales profit margin. The underlying assumption behind this rate reduction is that business owners and investors will re-invest the extra disposable income in job creation or other profitable economic activities.
Changes to Stamp Duty Land Tax: as of 17 March 2016, business owners who purchase or sign a lease on a property for non-residential use will benefit from new Stamp Duty Land Tax rates, which are set at 0 per cent for transactions of up to £150,000, 2 per cent for the £150,000-£250,000 bracket, and 5 per cent for transacted values over £250,000.
Higher Employment Allowance: this means that owners of small businesses who have employees on payroll could save up to £3,000 a year on National Insurance contributions.
The VAT threshold has been raised in line with inflation and is now set at £83,000, benefiting thousands of small businesses who will not be required to register.
Fuel duty freezed: although this measure has been devised having the needs of large companies in mind, small businesses will also benefit from it, as it is estimated that business owners could save £12 every time they refuel their company vehicle.
No changes in some crucial areas
Although SME owners have much to gain from the changes laid out in this year’s Budget, some crucial aspects remain unchanged. For instance, the recommendations made by the Office of Tax Simplification with regards to further tax reforms applicable to SMEs have not yet been adopted. Moreover, SMEs that need to claim VAT returns still face a time-consuming and convoluted process marked by lengthy delays.
Funding for training and skills development is still perceived as insufficient, particularly when it comes to apprenticeships. And while many expected that a Small Business Commissioner would have been appointed by the time the Budget was announced, the role remains vacant and leaves SMEs with little recourse when faced with issues like late payments.
Last but not least, British SMEs will have to wait a few more years until banking reforms are implemented and create better access to SME finance through alternative lenders.
Sources:
https://www.gov.uk/government/publications/Budget-2016-documents/Budget-2016
http://www.bbc.com/news/uk-politics-35819797
http://www.bbc.com/news/business-35826260
http://talkbusinessmagazine.co.uk/2016/03/15/14477/