The Autumn Budget is always a big talking point for those of us who work within the financial services industry, especially when you work with small businesses. Some have touted Philip Hammond’s budget as ‘the end of austerity’ and he himself called it the budget for “strivers, the grafters and the carers”. Whilst there was plenty in there about Brexit, the NHS and funding for councils to tackle Britain’s pothole-ridden roads, what we’ll be looking at in more detail here is what the budget means for those who work with, for, or own a small business. We are small-business accountants after all.
As is usual practice, the Chancellor also shared some facts and figures around the current state of the UK economy. For workers, it is good news, with wage growth at its highest level in nearly a decade and unemployment at its lowest since 1975 at 4%. The good news continued with announcements of increases to the Personal Tax Allowance and the National Living Wage.
Personal Tax Allowance Increase
This is one of the major points of the Autumn Budget for small businesses with employees. The Personal Tax Allowance (how much you can earn before you start paying income tax) will rise in April 2019 to £12,500 – an increase of £650. Alongside this the Higher Rate Threshold, the point at which earners start paying the higher rate of income tax (40%), will increase to £50,000 up from £46,350.
This will have a significant effect on your business and your future pay commitments. We always find the new tax year in April comes around very quickly, so make sure you plan ahead and put the right processes in place. Payroll can be stressful enough as it is. At HL&W we can guide you and your small business to be as tax efficient as possible – if you’d like to chat, get in touch.
Entrepreneurs’ Relief Extended
The qualifying period for Entrepreneurs’ Relief has been extended from 12 months to two years in a bid to encourage longer-term investment in British business. This tax relief means entrepreneurs pay a lower rate of tax (10% rather than 20%) on capital gains when they sell all or part of their business. The sale must be over the £11,700 capital gains allowance before being taxed. From April 2019 you must be a sole trader or business partner and owned all or part of a business for at least two years before selling to qualify.
Although not a commonly talked about topic, Entrepreneurs’ Relief was claimed by over 50,000 individuals each year, and typically saves claimants around £8,000 in tax. Although the primary aim of extending the qualifying period is notionally to encourage longer-term investment, it is also being used to stop those who were abusing the relief by narrowing the tax break to those who have at least a 5% stake in the business.
There were some predictions that Capital Gains Tax could be brought in line with income tax, but rates have remained the same.
IR35 Reform Extended to Private Sector
The headline announcement for the self-employed is that the public sector IR35 reform will be extended to include the private sector as well, but not until 2020. This has been a suspicion among many as far back as the end of 2017 and has now been confirmed by The Chancellor following an HMRC consultation over the summer.
The reform will be similar to that made in the public sector, in that responsibility for operating off-payroll rules will move from the individual to the organisation. In a big to give businesses time to prepare the change has been delayed until 2020. It was also announced that small organisations would be exempt to ‘ease the administrative burden’ and HMRC will support medium and larger organisations in implementing the changes, although it is unclear how this will be defined and what form the support will take.
Apprenticeship Levy Reduced
The push for a rise in apprenticeships continues with the announcement that costs will be reduced for small businesses. The amount that non-levy-paying companies have to contribute to the cost of apprenticeship training is to be halved to 5%. The Chancellor is calling this a £695m package to support apprenticeships and hopes it will encourage more employers to get involved.
Alongside this Mr Hammond also recommitted the government to creating three million new apprenticeships by 2020.
Business Rate Relief for Small Businesses
If you’re a very small business, then this is great news for you. Businesses with a rateable value of under £51,000 will have their business rates bill cut by two-thirds over two years. According to the announcement that could equate to £8,000 in savings.
The Chancellor also announced plans for a Future High Streets Fund - £675m of co-funding for local councils to plan the future of their high streets. A number of avenues were mentioned for this, including converting commercial premises to residential to increase footfall. Mr Hammond is hoping that this fund will go some way to addressing the changes brought about by the rise in online shopping.
There is always a lot to take in with every budget announcement, not least for small businesses where keeping up with the latest changes in tax rates can get lost in the day-to-day of running the business. Thankfully, a bit of research should help you deal with most of it. If you’d like to talk to one of our small-business accountancy experts about any of the Autumn Budget announcements, or anything else then get in touch with us today.