As with every Budget there are always winners and losers.
Corporation tax
The rate of corporation tax is to be reduced to 19 per cent in 2017 and then 18 per cent in 2020. This makes the UK one of the lowest corporate tax regimes in the world and will continue to attract attention from international businesses looking to set up in the UK.
However our largest companies are paying the same rate as our micro businesses. It would have been a real further boost if a lower rate for the smallest businesses and start-ups had been introduced.
National Living Wage
The chancellor announced the introduction of the National Living Wage from April 2016 at 7.20 rising to 9.00 by 2020 for those over the age of 25. Whilst this is welcome for the lowest paid employees in the country this could also have a negative effect on those businesses that have long term contracts with customers based on the current minimum wage, with no ability to increase their contracted prices.
Annual Investment Allowance
The increase in the Annual Investment Allowance to 200,000 from the anticipated drop to 25,000 in January on an ongoing basis is great news for those businesses that are looking to invest in qualifying plant and machinery. There will now be no need to rush capital investment plans.
Apprenticeships
The chancellor has reinforced his message that he is committed to training the next generation and has announced a further three million apprenticeships. He is also introducing a large firm levy on apprenticeships to ensure that larger companies do not benefit from the scheme without contributing.
Read more from our summer Budget commentary:
- George Osborne says tax dodgers have nowhere to hide
- George Osborne adds more detail to Northern Powerhouse plans
- George Osborne permanently fixes Annual Investment Allowance at 200,000
- Cut in corporation tax welcomed by British businesses
- Apprenticeship levy so firms get back more than they put in
- Roads Fund introduced as part of the plan to boost productivity
Dividends
There were sweeping changes announced to the way that dividends are going to be taxed. For many years business owners have extracted their profits by way of dividends and received the tax credit. This is to be replaced by a 5,000 tax free allowance and then three new rates of tax 7.5 per cent, 32.5 per cent and 38.1 per cent.
This has been done to bring the extraction of profit via dividends more in line with the rates paid on amounts drawn under PAYE. This will have huge implications for many business owners deciding how they extract their profits and the associated cashflows in their businesses. Owners of SMEs should now be discussing these changes with their advisors to identify the best way forward.
Landlords
Changes were announced whereby the ability to deduct mortgage interest will now be restricted to the basic rate which will result in an additional tax bills for higher rate tax payers.
What did he miss
There is still no further detail on any changes to the business rates system and how this is going to be changed to help SMEs. A review was announced but there is still no detail. SMEs have also benefitted hugely from some of the recently introduced government schemes such as SEIS. Many of our clients would have welcomed an increase in the limit on SEIS from 150,000 to increase the ability to attract investment.
Finally, there are still issues around raising finance for many start-ups and new businesses. The British Business Bank was introduced to deal with this but it remains an organisation cloaked in mysticism that most business owners do not recognise as adding any value. More information and education is required.
