“Austerity is over.” That’s the line from the Prime Minister and the Chancellor, who has just delivered the country’s last budget before Brexit. With cuts continuing in many areas, the reality is somewhat different - but we do have a few tax breaks to contend with.
This budget may less interesting to businesses than the effect Brexit will have, with so much still to be decided. But amidst a mixed slate of news, there are some positives for the business community. Here’s what your small business needs to know about the latest UK budget and how things are shaping up in the run up to Brexit.
Income tax and wages
Tax cuts are primarily a means of stimulus, with the hope that giving people more money will lead them to spend it, and support local businesses. In that sense, the budget is full of good news that should help to support the retail sector.
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At the bottom end, the basic personal allowance (the portion of your income on which you pay no tax) is rising by £750, saving £130 a year for some 26 million people. Individuals higher up the scale also stand to benefit. The threshold for the 40% tax band has increased by £3,650 to £50,000, amounting to an £860 gain before National Insurance deductions.
Of more direct relevance to businesses is the change to the national living wage. Starting in April 2019, employees over 25 years old will see their wages increase from a minimum of £7.83 per hour to £8.21 per hour. While this is a hit for businesses, it is seen as a necessary change to make minimum wage work more sustainable, and address the issues with ‘gig economy’ jobs.
An extension of public sector rules to self-employed people working with private companies could also affect your business. While expected to predominantly affect medium and large businesses, any self-employed contractors, consultants or engineers who current benefit from a reduced rate of tax may have to be brought onto your payroll.
Rates and levies
Perhaps the headline news from this budget is the new ‘Tech tax’, officially referred to as a digital services tax. The £400 million levy is specifically being targeted at tech giants such as Google, Amazon, eBay and Facebook, and aims to bring taxes on local income into line with more traditional, bricks and mortar firms.
Only businesses with global revenues above £500 million will be subject to the tax, protecting innovative tech startups and smaller firms. The additional tax is also seen as a necessary impediment to growth for international firms, who have often come to monopolise online communication and trade without contributing enough to local economies. While it will be a small hit for most of these firms, it’s a first step towards a more competitive digital economy.
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Speaking of bricks and mortar businesses, the nation’s high streets are also set to receive a boost. Local councils will receive a share of a new £675 million fund for high street planning and redevelopment. It has been suggested that this could include the conversion of commercial properties to housing in order to increase foot traffic, and other schemes such as pop-up shops.
Very small businesses will also see a significant boost in the form of cuts to business rates. Businesses with a rateable value of £51,000 or less will save up to a third on their current bills over the next two years, saving as much as £8000 over that period. In addition, businesses will no longer have to pay business rates on public toilets, as a response to widespread closures in recent years.
Retailers and pub owners received a broadly positive batch of news, to the exclusion of one particular kind of drinker. An extension of the freeze on alcohol duty is expected to save an average of 2p per pint of beer, 1p per pint of cider and 30p on bottles of hard spirits.
According to the chief executive of the British Beer & Pub Association, this represents a £110 million boost to pubs and pub-goers, and secures as many as 3,000 jobs. Wine drinkers have been less lucky, however, with prices on wine rising by between 7p and 9p in line with inflation.
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High strength ‘white cider’ was also excluded from the freeze on alcohol duty, but is a continued point of concern for those in government. It’s expected that an entirely new rate of tax will be unveiled for this drink, and will come into force from October next year.
Wine has been the highest earning drink for the Treasury since 2012, and is often seen as a more ‘middle class’ choice, perhaps convincing the government that they can afford to raise prices. Wine importers and producers are up in arms, however, who say the tax is jeopardising the UK’s status as the world’s largest trader of wine.
The Brexit conundrum
The overarching issue for businesses reading this budget is how much of it is set to change. Chancellor Philip Hammond has openly acknowledged that finances will need to be readdressed in the wake of a ‘no deal’ Brexit, with the potential for an emergency budget to delegate more funds to the transition.
While Brexit may be of less immediate concern to small businesses, who are likely to rely less on imports and exports, the lingering uncertainty over the terms of the deal isn’t helping anyone. It’s commonly accepted that less money will be available in the short to medium term after Brexit, with a greater impact in the event of a more distant relationship with the EU. This will inevitably affect the budget, and may lead to tax hikes and additional effects on businesses.
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What this budget does represent however is an attempt to mitigate any damage that might happen, and smooth the transition process. The tax cuts detailed in the budget are more pragmatic than benevolent, and their impact will be metered by the type of Brexit we get. For now, however, most businesses and individuals have a fair amount to be happy about.
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