With Chancellor Philip Hammond’s recent announcement of the 2018 UK budget, British entrepreneurs and small businesses now have a clearer idea of the financial landscape for the coming year and beyond.
Many of the changes are ostensibly focused on encouraging small-to-medium enterprises (SMEs), with lower business rates and a continuation of the VAT registration freeze. Some commenters have called this year’s announcement “the most small business-friendly budget that this Chancellor has delivered.”
There are some new taxes for certain types of enterprise, however – so what do the changes mean for your business?
Lower rates for small businesses
The Chancellor has disclosed that business rates are dropping for smaller retailers, in a bid to combat the long-standing decline of British high streets (along with a new tax on multinational digital retailers – more on that below). Companies with property rental values of £51,000 or less will see their business rate bill cut by a third for the next two years, enabling them to save thousands and invest in their own success.
For pub landlords, there is also a freeze on beer, cider and spirits duties, although tax on wine will continue to rise in line with inflation in February. This alcohol freeze will effectively amount to savings of 2p per pint of beer, 1p per pint of cider, and 30p per bottle of gin or scotch. Along with wine, white cider is also exempt from the duty freeze.
Hammond has also pledged to provide £675 million to start a “future high streets fund”, saying that it would “support Councils to draw up formal plans for the transformation of their high streets, to invest in the improvements they need, and to facilitate redevelopment of under-used retail and commercial areas into residential – helping with the housing challenge and delivering much-needed footfall to high street businesses.”
Income tax thresholds for 2019
Income tax rates affect business owners and employees alike – and as of April 2019, the Chancellor will fulfil the promise of setting income tax levels at £12,500 and £50,000 for the Personal Allowance and Higher Rate Thresholds respectively.
In other words, this would mean an extra £130 per year for a basic-rate taxpayer earning between £12,500 and £50,000. Hammond described this as “a tax cut for 32 million people” and said that since 2015, £1.7million had been “taken out of tax altogether”.
Digital services tax and e-commerce businesses
The Chancellor has announced plans to levy a new tax on the very largest technology companies trading in Britain – specifically those making over £500 million in sales annually (such as Google and Facebook). E-commerce behemoths such as Amazon are still going to represent significant competition for smaller online retailers, but this would likely be welcome news to those in direct competition. Currently, these firms pay tax only on profits, not revenue – so this plan would see them hit with a larger tax bill.
The current idea is that as of April 2020, these companies would be expected to pay a 2% “digital services tax”, although the Chancellor has mentioned that if an equivalent European initiative were to be developed in the intermediate years this British plan might be dropped in order to adopt the international scheme. The 2% UK digital services tax, should it be implemented, would be formally reviewed in 2025.
“It is only right,” said Hammond, “that these global giants with profitable businesses in the UK pay their fair share towards supporting our public services.”
No disposable coffee cup tax
Prior to the budget announcement, coffee shops and catering businesses of all sizes were anticipating the possibility of a so-called “latte levy”, which would be designed to discourage the use of disposable takeaway cups. However, the Chancellor did not uphold this proposition and stated that such a scheme would fail to deliver a “decisive shift” from the reliance on throwaway packaging.
In deference to environmental concerns, though, Hammond has announced another new tax with recycling in mind – a levy on the manufacture and import of products containing less than 30% recycled plastic. This could mean that any small UK company importing plastic components or packaging for their products could be forced to source alternatives or otherwise endure what is effectively a price rise.
The timing of this new tax has not yet been clarified, and will be subject to an initial period of consultation.
VAT registration freeze
Many small business owners will be pleased to hear that the UK’s £85,000 threshold for VAT registration is being upheld as-is for a further two years. The Chancellor has noted in previous budget announcements that the rate is uncommonly generous and that he had received pressure from some groups to lower it, saying that it was “by far the highest in the OECD” and that in Germany the VAT threshold was “just £15,600”. At present, he is choosing to preserve it unchanged in order to “give small businesses certainty.”
Having stated last year that he would consult on whether the design of the the VAT threshold “could better incentivise growth” for the future, Hammond has now said that his options have been “restricted by EU law” and that he will “continue to work on this issue as our future VAT regime becomes clear over the years ahead”.
Lower apprenticeship fees
The contribution made by employers taking on new apprentices is due to be reduced – whereas currently the business pays 10% of the apprenticeship fees, under the new scheme this will be reduced to 5%. The Chancellor described the proposal as “a £695m package” that would help make the apprenticeship system “work for employers.”
It’s thought that the 5% fee will likely only affect new starters when the scheme is implemented at some point in 2019, although an exact date has not yet been set.
In summary, the outlook seems promising for entrepreneurs and SMEs, with reduced business rates and potential development to high streets as well as a preservation of the favourable high VAT threshold. Small business owners should now be able to make arrangements for the coming tax year with confidence and plan for a successful future ahead.