The July Budget raised a lot of talking points – namely the drop in corporation tax and the new National Living Wage. But what other changes were made and how will these affect the UK’s smaller businesses?
Head of Businesscomparison.com, Philip Brennan, takes a look:
Banks to share SME credit information
In a bid to further improve access to finance, the Government will force banks to disclose their SME credit information with other lenders, and share details of SMEs they have rejected for loans with online sites, such as ourselves, that can help match them with alternative finance providers. In doing so, the amount of smaller businesses able to secure funding will inevitably increase.
In addition, the British Business Bank has been told it must work to increase and diversify the amount of finance available to SMEs, and initial forecasts predict it will provide up to £10 billion by 2019, supporting SMEs even further.
Cut in corporation tax
This announcement unveiled the Government’s plans to reduce the rate of corporation tax to 19 per cent in 2017, and 18 per cent in 2020, one of the lowest rates in the EU and half that of the US. However this won’t have much of an impact on many of the UK’s start-ups and SMEs as they only generate a marginal profit.
National insurance contributions
Another big move is the 50 per cent increase in the national insurance employment allowance to £3,000, which will help smaller business owners reduce their wage bills. In real terms, this means a company can employ four staff and pay them the national living wage, without having to pay national insurance.
Annual Investment Allowance
In what is definitely a boost for SMEs, the Budget brought the announcement that the Annual Investment Allowance will be set at £200,000, rather than the expected £25,000. This means that companies can make tax-deductible investments up to the value of £200,000 in equipment, plant and machinery to encourage and protect future business growth, and help businesses get off the ground.
Another measure introduced to help futureproof businesses is the apprenticeship levy, which will guarantee that those training apprentices receive more money in support than any investment will cost them. This will not only benefit smaller businesses which already employ apprentices, but will encourage other SMEs to consider apprenticeships, helping them develop grassroots talent.
A tax-free Dividend Allowance of £5,000 a year is being introduced from April 2016, replacing the current system. While those earning dividends of more than £5,000 will pay more than they do now, smaller businesses, start-ups and entrepreneurs may likely benefit and take home more, although the top rate tax payers will almost certainly be hit by the higher threshold.
New enterprise zones will also be created, allowing small firms in certain areas to pay reduced taxes and receive business support in a bid to help encourage growth and investment in the SME sector. The Government claims that existing enterprise zones have aided in the creation of 15,000 jobs across England, so it’s a positive move.
In my view, the measures set out in the Budget will go some way to helping small businesses develop and invest in their futures, while the reduced corporation tax, increase in National Insurance allowance and apprenticeship levy should help create new jobs as start-ups are encouraged to build their teams and strengthen employee numbers.
However, the increase on taxes for those self-employed paying themselves via dividends will create billions of pounds worth of hurt (£6.8 billion), and could risk preventing budding entrepreneurs from taking that first step by making being your own boss less attractive.