Parliament officially opened for the next session after the Queen made her speech, laying out the legislative for the next two years, under the leadership of the new coalition government made up of the Conservative and DUP party.
No 10 announced on Monday that the much-awaited coalition deal between both parties had been finalised. The deal was heavily geared around economic measures, now that Britain is to break away from the European Union, opening up new opportunities for small businesses, changing the way they trade, recruit and structure their income.
We look at five ways the Conservative/DUP pact could affect the financial expectations of small businesses:
National Insurance Contributions (NIC)
As the Prime Minster failed to secure a majority government with a coalition, the last thing Theresa May would desire is to rehash the backbench revolt that took place during her attempt to raise Class 4 NIC for the self-employed.
The proposed measure was quick to cause disarray upon MPs, as David Cameron’s manifesto for the Conservative party pledged that there would be no rise to National Insurance, which ultimately led to the proposed measure being scrapped.
The deal formed between the Conservative party and Northern Ireland’s DUP mentions that the NIC system will be amended to make it fair and simple.
In addition to this, the Queen’s Speech read that ‘this legislation does not relate to the discussion of Class 4 contributions at the time of the Spring Budget 2017’. Contractors, Freelancers, and Small Businesses utilising the services of the self-employed shouldn’t expect this change to be on the horizon anytime soon, unless the political landscape changes.
Making Tax Digital
Making Tax Digital (MTD) proposes businesses to record their tax returns digitally, and on a quarterly basis. Small Businesses under the VAT registration threshold which currently stands at £85,000 are exempt.
During the Spring Budget 2017 announcement, the Chancellor announced that the government would provide 3.1 million small businesses with an extra year to take up MTD, taking the date to 2019. Making Tax Digital has been removed from the finance bill, but the original timescale still stands. The scheme is expected to be set into legislation by the end of the year.
Dividend Tax-Free Allowance
The cut to tax-free dividend allowance had been reduced from £5000 to £2000, effective from April 2018, as announced in the Spring Budget, but this measure was delayed following the snap election announcement.
Small business owners can choose to pay themselves by taking dividends, as for the many, this proves to be more tax efficient. As a result of this proposed change, company directors may have to rethink the way they structure their personal income.
A dividend is a portion of the company’s profits that’s paid to the shareholder, who is the owner of the company, limited by shares.
Last week, Theresa May took to Brussels for the first of the Brexit negotiations. She ruled that three million EU citizens will be granted permanent residency after Brexit day in March 2019, as long as they have lived in the UK for five years.
In practical terms, EU residents will be required to register for ‘settled status’, to help measure the demand for UK residency.
According to the Office for National Statistics (ONS), there are approximately 3.2 million EU nationals living in the UK, with around ‘335,000 working in manufacturing’ and ‘211,00 working in health and social work activities’.
As this threatens the intake of future EU workers arriving in the UK, small businesses employing EU staff could be massively affected. On the other hand, the decision made by Theresa May could reassure a large portion of small businesses within the UK, as the Prime Minister has now shared a sense of direction in relation to this.
As an attempt to stride forward, following UK’s divorce from the European Union, May has introduced a series of bills:
Immigration Bill – Terminate EU’s free movement rules, whilst still ‘allowing the UK to attract the brightest and the best.’
Fisheries Bill – Enable the UK to control access to its waters and set UK fishing quotas once it has left the EU. The fishing sector currently employs 34,600 people, making it a key industry in coastal communities in the UK.
Trade Bill – Ensure that UK businesses are able to benefit from trade with the rest of the world. The UK will implement an international trading framework to protect the value of exports which stood at £546.7 billion in 2016, with the value of imports being £584.6 billion.
Customs Bill – Allowing the UK to operate standalone customs and indirect taxes regime on exit from the EU. See pg. 19 of the Queen’s Speech to read the full proposed bill.
In the run-up to the general election, Theresa May was quick to pledge that she would reduce corporation tax to 17 per cent while the Labour party promised to raise corporation tax to 26 per cent. It’s not hard to believe that the Prime Minster was unable to uphold her pledges as she failed to secure a majority government and as a result, Corporation Tax will stay at the steady base rate of 20 per cent.
If you are a small business in Northern Ireland, you may also benefit from the £1 billion support package which has been ring-fenced for infrastructure, health, and education, which was part of the agreement between Theresa May and Arlene Foster, DUP leader.
The proposed measures drawn together by the coalition government will be subject to a vote at the House of Commons this week. Jeremy Corbyn, Labour leader, has already voiced his uncertainty over the ‘government in chaos and confusion.’ Small businesses should expect changes over the coming year as MPs adjust to the new minority government, and the consequential effects of Brexit.