Written by: Debbie Austin
The Chancellor began his Autumn Budget 2017 statement by describing a future full of opportunities. While the UK economy has appeared quite robust in the face of Brexit negotiation uncertainty, the reality was a synopsis of weak growth, lower productivity and thus worse public finances than previously projected.
Pensioners will be most relieved as there weren’t any changes to the tax treatment of pensions, an area that could have raised plenty of additional revenue for the Exchequer. First time home buyers were the other big winner with the stamp duty land tax changes. This may help stimulate what has been a quite stagnant property market of late which is also good news for sellers.
1. How the budget impacts SME businesses
Significantly the government announced an extra £2.3bn investment in Research and Development (R&D). As part of this the R&D expenditure tax credit will be increased to 12% from its current 11% level from 1 January 2018. A campaign is also being launched to increase awareness of the eligibility for R&D tax credits among SMEs. This will be aimed at businesses using emerging technologies.
Technology was a key area of focus with new funding from the British Business Bank for projects including fibre broadband, 5G mobile and artificial intelligence. This will come as a boost to many cash starved start-up businesses.
There will be a number of changes to business rates which include:
• Bringing forward to 2018 the switch in indexation from RPI to the (usually lower) CPI
• Increasing the frequency of revaluations to every 3 years (previously it was 5) after the next one in 2022.
• Retrospective legislation to deal with the impact of the so-called ‘staircase tax’ by recalculating valuations and qualification for small business relief to the position in the period before April 2010
With regards to capital gains for limited companies, these are dealt with through corporation tax and referred to as chargeable gains. Total chargeable gains are detailed in the corporation tax return. Significantly as of January 2018 the corporate indexation allowance for chargeable gains will be frozen, so that companies will no longer benefit from relief for inflation after this date.
Employers should note that the minimum wage will rise in April 2018 to £7.83 from the current £7.50 rate per hour. Plans for a £9 minimum wage for the over 25’s didn’t come to fruition due to the weak economic data.
Contrary to speculation beforehand, the VAT registration threshold remains at £85,000 for 2018/19 and 2019/20.
Businesses that operate as online market places will now become jointly and severally liable for any unpaid VAT of both UK and overseas traders.
For residential property held within a limited company, the Annual Tax on Enveloped Dwellings (ATED) charges will rise by 3% from 1 April 2018 in line with the Consumer Prices index. The charges for 2018 to 2019 will be as follows:
Property Value Annual Charge
£500,000 – £1,000,000: £3,600
£1,000,001 – £2,000,000: £7,250
£2,000,001 – £5,000,000: £24,250
£5,000,001 – £10,000,000: £56,550
£10,000,001 – £20,000,000: £113,400
The company car benefit in kind diesel supplement will rise from 3% to 4% with effect from 6 April 2018, except for cars that meet the real driving emission step 2 (RDE2) standards. The fuel benefit charge and van benefit charge will increase by the September 2017 RPI from 6 April 2018.
2. What this budget means for individuals
The income tax Personal Allowance will increase from the current £11,500 to £11,850 from April 2018. It should be noted that the increase is in line with inflation at 3%. Similarly the higher rate threshold will rise from £45,000 to £46,350 in April 2018.
On the face of it there was good news for those trying to get on the housing ladder (excluding Scotland) with no stamp duty land tax on the first £300,000 of a purchase for first time home buyers. The caveat being the value of the property can’t exceed £500,000. This may make such properties appear more within reach without the tax but long term it may ramp up demand and so could drive prices upwards.
On housing, the Chancellor is looking to use a £45bn package of investment, loans and guarantees to increase the annual number of new homes to 300,000 by 2025. This is up from 217,000 last year which again is good news for first time buyers. The Chancellor also supported a plan to build 100,000 new homes in Oxfordshire by 2031.
There will be higher taxation on second homes, specifically empty properties which could be subject to double council tax.
The lifetime pension allowance will increase to £1.03 million from the current £1 million level as of April 2018. The annual allowance however, remains the same. While the ISA limit is frozen at £20,000 and the Lifetime ISA (LISA) limit at £4,000, the Junior ISA and child trust funds will rise to £4,260 from April 2018.
Tax relief in relation to venture capital trusts (VCT), enterprise investment schemes (EIS) and seed enterprise investment scheme (SEIS) will be altered to focus more on businesses where this is a real investment risk. Legislation will be put in place to tighten up the rules for investments to qualify under these tax schemes.
3. The economy
The reality is the Chancellor was very constrained by the public finance figures. Employment is high but only a significant rise in productivity will boost GDP and thus tax receipts. The problem is productivity “hasn’t been this stagnant since the end of the Napoleonic wars”, according to the Economist. The UK lags behind our close EU competitors in the form of Germany and France when it comes to output per hour.
The reasons for poor productivity growth vary. The banking crisis led to healthy SMEs not receiving the finance they so needed to invest and expand. Bank balance sheets may have shown signs of recovery since then but interest rates being so low could have distorted the economy. Such a policy might have actually guaranteed the survival of less productive businesses that usually wouldn’t make it through recessions.
Business investment has remained weak in recent years and the uncertainty of Brexit negotiations won’t have helped matters. That said, issues do create opportunities. If the business world is forced to shift away from a reliance on cheap EU migrant labour then they will have to invest in their employees in order to get more out of them. The message for SMEs is therefore clear, to achieve growth, focus and invest in your staff long term.