The message to small and medium businesses was one of encouragement, support, stability and certainty; more minor tweaks than major reforms
In a year of shocks and surprises, small and medium sized businesses (SMEs) will welcome the stability offered by the new Chancellor’s Autumn Statement. In a largely confirmatory Autumn Statement which offered small tweaks as opposed to major reforms, the Chancellor has re-affirmed the position that “Britain is open for business”. However, he also re-iterated that to ensure that the country raises living standards for our nation’s JAM (the “Just About Managing”), the country’s businesses must improve their productivity to catch up with our European neighbours; to whom we lag behind as much as 30% in some cases. He also confirmed his support for SMEs as the country’s strongest and fastest growth area; however his support will be focussed on macro-investment into infrastructure and innovation as opposed to wide ranging taxation reforms.
The Government has announced £7.2 billion to support the construction of new homes, £4.7 billion to enhance the UK’s position as a world leader in science and innovation, £2.6 billion to tackle congestion and ensure the UK’s transport networks are fit for the future and £0.7 billion to support the market to roll out full-fibre connections and future 5G communications. Whilst the funding is, in some cases, a drop in the ocean of what currently circulates within these industries (these announcements still have the UK spending less on infrastructure than Canada and China as a percentage of GDP), it certainly shows where the Government sees the future growth of this nation’s economy. Assuming SMEs have access to support large corporates to deliver these large infrastructure projects, the announcements do provide opportunities to these businesses in the coming years as well as a more robust and effective infrastructure in which to grow in their own right.
On the other hand, there are a few elements to watch out for. The announcement of a consultation of a review of how different ways of working are taxed could cause concern for large swathes of micro- businesses. As an estimated 4.2 million businesses that make up the UK’s 5.5 million SME community have just one employee, the outcome of the consultation could have massive tax implications for small business owners in the future. It is also worth noting that the national minimum wage and employers’ national insurance costs are to increase, without any new plans for training or apprenticeship incentives for SMEs.
Also, in January 2017 the Government will publish its response to the consultations on the Making Tax Digital programme. Under these proposals SMEs could find the administrative burden increased by requirements such as quarterly financial reporting.
It was confirmed that there may be potential improvements to the already favourable research and development (R&D) incentives in the UK in particular a review of the R&D Expenditure Credit and Patent box regime, aligning the Chancellor’s desire for the UK to continue developing its tech industry and ensure this is sustainable for years to come. However, the R&D Expenditure Credit is unlikely to be amended until post-Brexit as it would require EU approval.
The Government has confirmed its position that it wants to create a favourable but fair tax system in which the UK is an attractive global base. This was demonstrated by recommitting to the Business Tax Roadmap under which the rate of corporation tax will be reduced to 17% by 2020, and there is a reduction of business rates by £6.7 billion over the next five years (noting that the reduction specifically affects an estimated 600,000 small businesses). Both of these measures focus on reducing the SME community’s yearly expenditure on taxation and rates, so that they can focus their spending on productivity and innovation.
The Government wants to promote innovative and productive businesses but stresses that companies and individuals must pay their ‘fair’ share of taxes. The confirmation of the interest deductibility and loss utilisation restrictions coming into force in April 2017 remains focussed more at larger businesses, however SMEs should be aware of these as they grow in size. We commented at the time of the March Budget that the deal the former Chancellor had struck with growing businesses seemed to be “I will help you to grow, and when you become large and successful, I expect you to pay your way on tax”. The new Chancellor has confirmed this and in a time where ethics and tax are so closely aligned, this can hardly come as a surprise.
Perhaps the biggest shock of the day was the announcement that this was to be Phillip Hammond’s first and last Autumn Statement. The Budget is to move to the Autumn with a Spring Statement to take the place of the Budget in March. Considering this was perhaps the biggest surprise that the Chancellor threw at the SME community, we hope we can all cope. The Chancellor re-iterated that he wants to help SMEs become the nation’s large corporates of tomorrow. Whilst the investment is not necessarily as large as it could be, given the economic landscape, the messaging and direction of travel is positive. SMEs should certainly have reason to be positive from today’s announcements, having been provided with a boost to infrastructure and a stable, more certain environment within which to innovate and grow into the large corporates of tomorrow.
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Changes to the VAT Flat Rate Scheme announced
A new rate of 16.5% will apply for “limited cost” traders that use the Flat Rate Scheme, from 1 April 2017.
New Budget timetable
The Chancellor announced that the Spring 2017 Budget will be followed by
an Autumn Budget, marking a switch to a new annual Budget timetable.
Taxation of non-resident companies
The Government is to consult at Budget 2017 on bringing non-resident
companies subject to income tax within the corporation tax regime.
Substantial Shareholding Exemption (SSE) Reform
Investing company requirements are to be removed, and a more
comprehensive exemption for companies owned by qualifying institutional