Predicting the outcome of any Budget is notoriously tricky, but as we gear up for the first one of 2020 on March 11, there’s certainly an air of unpredictability about what might be unveiled.
Ignoring the fact that the results of the General Election were just a couple of months ago; and that the UK officially left the EU on January 31; there’s also the small matter of Sajid Javid lasting less than six months as Chancellor of the Exchequer.
Mr Javid unexpectedly resigned from his position on February 13, throwing this year’s Budget plans into potential chaos. He was quickly replaced by Rishi Sunak – a name few people will have recognised just a couple of weeks ago – which heightened expectations that the Budget would likely be delayed until later this year.
But, Mr Sunak quickly dashed that speculation and committed to the original date. So, on March 11, we can expect to see him outside of Number 11 Downing Street with the iconic Budget briefcase before he makes the trip to the House of Commons to deliver his statement.
There are plenty of predictions about what this year’s Budget might entail and many expect the new Chancellor to stick closely to some of the commitments made by his predecessor. But if tradition is anything to go by, we can expect there to be one or two surprises.
A Budget survey we conducted last week with some of our customers representing a broad range of sectors – everything from manufacturing and construction to hospitality and retail – found that almost 65 per cent of SMEs felt this was an important Budget for the future of their business.
So with that in mind, here we look at some of the key policies that will be of most interest to the small business community:
Changes and a review of Business Rates
Business rates are a hot topic for UK SMEs. Our survey found that a huge 68 per cent of businesses felt this was something that really affects their business, but the good news is there are positive plans in the pipeline, which come into force from April. These include:
- More than 400,000 retail businesses with premises that have a rateable value of up to £51,000 will benefit from retail discount on business rates, which is being increased from a third to 50 per cent. For example, a business with a rateable value of £30,000 per annum could now pay £15,000 instead of £23,100 under the previous scheme.
- A new £1,000 relief will be introduced for pubs with rateable value below £100,000 and will apply after and in addition to the retail discount. Using the example above, a pub with a rateable value of £30,000 could now pay £14,000 per annum.
- A commitment to review the business rates system, with the next review date being moved forward to 2021 and rates revaluations now set to take place every three years instead of five.
According to The Times, the new Chancellor will also use the Budget to announce a “fundamental” business rates review, which many SMEs will be keen to hear more specific details about.
Business owners need to be aware of potential changes to tax relief on selling or liquidating a business, which may well be announced in the upcoming Budget.
Launched in 2008, Entrepreneurs’ Relief allows a business owner to hand over their business at just a 10 per cent rate of tax on the first £10m of total gains since 2008. Without this relief, a business owner would pay a top rate of 20 per cent capital gains tax.
This potential change is attracting a lot of attention in the media, with the Guardian claiming the change could deliver a £3bn boost to the Treasury.
The Chancellor is under pressure to increase spending on the NHS, social care and schools whilst also sticking to the government’s commitment to bring spending into balance by 2022. The Institute for Fiscal Studies (IFS) has suggested this will not be possible without increasing taxes.
The Conservative election manifesto stated that the government would not put up income tax, national insurance or VAT. So far, it looks as though the government will stay true to that commitment, but given the report from the IFS, it would appear that money needs to be raised from somewhere.
Seventy-two per cent of SMEs from our survey highlighted VAT as an element of the budget that would affect their business most, putting it at number one in the list. A freeze on the current rate of 20 per cent seems like the most likely outcome.
Before the General Election, Boris Johnson announced that he would freeze a proposed cut in corporation tax to provide somewhere in the region of £6bn for other priorities. This happened in November 2019 when the plans to cut the rate from 19 per cent to 17 per cent were shelved.
Our survey found that 40 per cent of business owners were concerned about how changes to corporation tax would affect their business – the third most popular answer. Mr Sunak may use the Budget to reveal if and when the potential reduction might be pencilled in for. For specific tax advice, please speak to your accountant.
National Living Wage
There are already plans in place to raise the rebranded “National Living Wage” from £8.21 to £8.72 an hour for those aged 25 and over – an increase of 6.2 per cent. For 21 to 24-year-olds, it will go up 6.5 per cent to £8.20 and for 18 to 20-year-olds, there’s a 4.9 per cent increase to £6.45.
These changes are due to come into force from April 2020 so any last-minute changes are unlikely, but there could be announcements about other longer-term ambitions. This is one to keep an eye on for SMEs who will need to consider the impact of increased labour costs.
National Insurance – threshold increase
Positive news for business owners and the UK’s workforce could come in a tax cut for more than 30 million people with plans to increase the threshold for paying National Insurance. Those earning more than £12,600 can expect to save around £100 a year if this policy is rubber stamped.
Zero hour contracts
There has been some speculation that there could be announcements around zero-hour contracts and maternity leave with some changes to workers’ rights. Not much detail has come out about this one so far, but we could see more information released ahead of Budget day.
SMEs from all sectors will be watching with anticipation to see if this Budget could be a turning point for the UK’s economic future, so it will be interesting to see how it all unfolds when Mr Sunak delivers the statement on March 11.
As fears grow around the potential impact coronavirus could have on the UK economy, many have called for a rethink of the Budget. With the recent announcement that workers will receive statutory sick pay from the first day off work, not the fourth, the governement’s immediate focus remains on minimising the effect on businesses and ensuring public services can continue.
While the government continues to asses the scale of the outbreak, and the knock-on effect to the economy, it is expected that some of the big rumoured reforms are likely to be shelved until a later date.
For specific tax advice, please speak to your accountant.