Last week, Chancellor of the Exchequer George Osbourne stood outside 10 Downing Street in his expensive suit, wielding a no-doubt expensive red briefcase containing the 2016 budget, which would explain exactly how much in debt we are and how much of a pay rise MPs would get, among other things*.
Irony and jokes aside, I wondered how the budget might affect small and medium sized businesses (SMEs) here in the UK, the reason being that it’s these SMEs that the rowdy bunch here at sales-i pride ourselves in helping on a daily basis.
This year’s budget is seemingly filled with promise for SMEs up and down the country. Here are some of the key points all SMEs should be in the know about.
1. Business rates
From April 2017, a new £15,000 threshold for small business rate relief will be in place. This works out at more than double the previous level of relief, which was set at £6,000.
As a result, 600,00 SMEs will no longer pay any business rates, while a further 250,000 will pay much lower rates.
Corporation tax is also set to be cut from 20% to 17% from next year.
2. David (and George) 1 – 0 Goliath (kind of)
To fund the business rate cuts, George Osborne has capped debt interest payments to 30% of earnings.
Debt interest payments are a so-called ‘loophole’ used by larger firms to cut their corporation tax bills.
This essentially means that big firms will start to pay their fair share and SMEs will directly benefit. Win-win.
Referring back to the kind of part of the title, the big boys were already arguably up by a pretty large score.
That said, it’s not as clean cut an issue as many think; most people think the government should simply put new tax laws in place with immediate effect to make the larger corporations pay huge taxes now.
The problem here, however, is that many would simply up sticks and move to other countries with lower taxes such as Ireland.
If this were to happen, thousands of jobs would be lost and the economy would go downhill. So this, slowly, slowly approach from the government with regards to making the big boys pay their fair share does seem sensible.
3. The self-employed
Those who are self-employed will no longer pay class 2 national insurance, which will be abolished in April 2018.
The threshold for paying income tax is also rising to £11,500, which is good news for all, particularly those who are just starting new ventures.
Micro-entrepreneurs can also now access two tax breaks which are described by the chancellor as “Tax breaks for the digital age”.
The first allows those who trade goods online through websites like eBay and Amazon to earn an extra £1,000 free of tax.
The second gives the same break on taxes to those who rent their properties through ‘sharing economy platforms’ such as Airbnb.
What does it all mean?
All in all, it’s pretty good news for SMEs in the UK. The biggest benefit is the fact that larger competitors will now begin to pay their fair share and have to compete without the ‘sweetheart’ deals that left them in much stronger positions than their smaller competitors.
Following on from that, there are some key things you should be aware of if you work in either of the following industries:
Food and beverage
The sugar tax on drinks will no doubt have some beverage companies rethinking their pricing strategies. The tax, which is unlikely to put people off actually buying fizzy drinks, goes directly towards school sports funding.
Ironically, this may make purchasing fizzy drinks a more ‘okay’ decision in the mind of parents and the public at large, because doing so now delivers a benefit beyond the enjoyment of drinking.
Duty rates on beer, spirits and most ciders will be frozen too (waheyy), which should go down well with many of the microbreweries and, no doubt, their supporters (myself included).
£700m has been set aside to build stronger flood defenses in areas hit the hardest. This of course means that contracts will be up for grabs for many construction companies, and much research and development is also likely to go into the field.
Tie into this Osborne’s ‘Northern Powerhouse’ project, which aims to build and improve many of the rail lines and roads in the North of the country.
*In fairness, my jab at Osborne and Co. at the start of this article was just a joke. Their 10% pay rise comes with the news that their pensions, expenses and other allowances will be drastically cut. Tie this in with the fact that this is the first pay rise MPs have had since 2010 and it’s actually not quite as ‘unfair’ as it looks. In fact, the independent watch dog which gave the green light to the pay rise has said it won’t cost the tax payer a penny.