Chancellor Philip Hammond today announced the government’s Spring Budget. In this piece, we summarise how it will impact on small businesses.
Economy
Hammond noted that there was no room for complacency on the work to balance the economy. He told MPs that while the deficit is down, debt is still too high and productivity remains stubbornly low.
The UK is the second-fastest growing economy in the G7 in 2016, the Chancellor said. His growth forecast for 2017 was upgraded from 1.4 per cent to 2 per cent, but GDP downgraded to 1.6 per cent, 1.7 per cent, 1.9 per cent in subsequent years, then 2 per cent in 2021-22.
Inflation forecast is set to rise to 2.4 per cent in 2017-18 before falling to 2.3 per cent and 2.0 per cent in subsequent years.
Personal tax
Hammond said that lower national insurance contributions from self-employed workers is forecast to cost public finances £5 billion this year alone.
To combat this, the main rate of Class 4 national insurance contributions for those who are self-employed is set to increase by 1 per cent to 10 per cent in April 2018 and 11 per cent in April 2019, raising £145 million a year by 2021-22 at an average cost of 60p a week to those affected.
This will ultimately, according to the Chancellor, make things fairer to those in employment and bring the self-employed in line.
Pensions and savings
The Chancellor also turned his focus on the ‘unfair discrepancy’ between the total tax paid by an employed worker and one who has set up his own company.
He announced that he will reduce the tax-free dividend allowance for directors/shareholders from £5,000 to £2,000, with effect from April 2018.
This is certainly worrying for the many small business owners that rely on dividends as a source of income.
Business rates
Before the budget, the Chancellor faced tough criticism from businesses over the higher business rates, but the budget looks to assuage these feelings in three distinct ways.
1. No business currently losing small business rate relief will see their bill increase next year by more than £50 a month to soften the blow.
2. To save the local watering holes, 90 per cent of local pubs will have a £1,000 discount on their business rates bill.
3. A £300 million fund for local councils to offer discretionary relief for hard-hit cases in local areas.
The Chancellor said that he is unable to abolish these rates due to the taxes bringing in £25 billion a year. A consultation is therefore set to focus on this section of the budget and Peter Tuvey, co-founder of Fleximize, an alternative business lender, thinks that it is now imperative that the consultation on this review is launched as soon as possible, along with plans for implementation.
