From the top · 25 October 2018

Budget 2018: Did the chancellor meet the needs of micro businesses?

Budget 2018
Has the chancellor made life easier for micro business owners?

Last week, we asked you how Philip Hammond could make life easier for micro businesses at the 2018 Budget. Now the chancellor has made his statement, we’ve held him to account by contrasting the announcements with what you demanded.

  1. Fix the business rates system

“An ineffectual albatross around the neck of some of Britain’s most important employers.” 

What you asked for:

For the chancellor, business rates is an issue that will not go away. With a projected 2.5% rise in rates in April 2019, UK companies are expected foot a total bill of £758.55m in the next tax year – a burden which has increased by a third, or £6.04bn, in the last ten years.

The system, according to Jeremy Thomson-Cook, chief economist at payment platform WorldFirst, is “simply not fit for purpose”.

“A tax on a property’s ‘rateable value’ set centrally, but paid locally allows no flexibility for local authorities to levy what they think fair and equitable for their business constituents. It also happens to be one of the few direct taxes that is levied with no forethought as to the business’ ability to pay.

“In the current post-vote, pre-Brexit world wherein the UK is desperate to attract investment from businesses who can take advantage of our well-educated, highly-skilled workers, what could help more than cutting out some of the most onerous business taxes in the G7?”

Expected to absorb the latest rise in rates, small business owners will be wondering where the money is set to come from.

Thomson-Cook added: “A centralised tax targeting businesses based on their premises is an ineffectual albatross around the neck of some of Britain’s most important employers and many will be looking to the Budget to see change in this area.

What the chancellor announced:

Hammond announced a £1.5bn cash boost into the UK business rates system, with small high street retailers the focus of relief to combat the threats posed by ecommerce and shifting shopping habits.

The Treasury claimed almost half a million high street businesses would see business rates cut by a third, through £900m of immediate business rates relief.

Rateable values are also set to change. According to the Treasury, changes would see a Sheffield pub with a rateable value of £37,750 save £6,178 next year, while a Midlands newsagent with a rateable value of £14,250 would save £1,749.

Expressing relief at the pledge, Mike Cherry, chairman of the Federation of Small Businesses (FSB), said: “For far too long (retailers) have come up against an outdated and unfair rates system and it’s clear that change is needed.”

Read more about business rates:

  1. Drop IR35 and the tax raid on freelancers

“The taxman is paranoid”

As part of its attack on “disguised self-employment”, the government is committed to introducing IR35 into the private sector. The reforms would see freelance and contract workers considered regular employees by HMRC enter PAYE and the National Insurance system. Nigel Morris, tax director at MHA MacIntyre Hudson accountants, called for a delay to IR35 changes until April 2020.

“HMRC has consulted on implementing similar changes to the private sector, effective April 2019, but it’s unlikely businesses will be ready,” Morris said. “We’d like to see the chancellor use any Brexit ‘deal dividend’ to support the delay of implementation until at least April 2020.

“In addition, we’d urge HMRC and the Treasury to revisit the proposed arrangements and potential alternatives it ruled out in its consultation.”

Read more: What is IR35 and does it affect you as a business owner?

While some call for a delay to IR35, many micro business champions want the policy pulled from the private sector altogether. Lee Murphy, founder of Pandle, said HMRC needed to support the self-employed rather than impose further bureaucracy.

“The taxman is paranoid that lots of freelancers are really “disguised employees” who work full-time for one employer on an indefinite basis.  There is a bit of that, but tackling it by hitting two million innocent people with massive cost and bureaucracy, not to mention additional costs being passed onto the organisations that use them, will damage this essential part of Britain’s economic success at the worst possible time.

“What’s more, the abolition of Class 2 National Insurance not going ahead is certainly a mistake – not only for the relief on sole traders but also the simplification of the National Insurance system. This would have been a great move to include all NI for sole traders under Class 4 NI and simplify the system.” 

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TAX

 

“Mistruths and denials”: HMRC accused of misleading chancellor on IR35 reforms

Tax experts have accused HMRC of misleading the Treasury on new IR35 reforms, the off-payroll rules currently under scrutiny, and explicitly called the tax office’s integrity into question.

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  1. Reduce corporation tax

“They need to look long and hard at some sort of relief”

Gary Jenkins, director at No Brainer, wants the chancellor to acknowledge the contribution of small businesses to the economy by reducing corporation tax, currently set at 19% for smaller firms.

“I’d like to see corporation tax burdens reduced. In terms of jobs growth, a large part if it is coming from the 99%+ SMEs who make up companies in UK plc – young, hungry, growing businesses on the up. I think they need to look long and hard at some sort of relief – be it in corporation tax or something else – pinned to job creation for SMEs. Here’s hoping!

“All political parties say they are ‘pro-business’, but I’m yet to see any pull out a stand-out policy or strategy that supports (and reduces burdens on) these job-creating startup businesses like ours.

Read more: How to reduce corporation tax as a small business owner

  1. Protect tax-free dividend allowance

“Seeing this reduced further is only going to harm micro businesses.”

Mariah Tompkins, founder of WKM Accountancy Services, urged Hammond to resist further cuts to the tax-free dividend allowance for entrepreneurs running limited companies.

“For micro businesses, it’s always crucial to keep taxes down to help the business thrive and develop,” she said.

“One of the key areas we would like to see – or like to see ignored – in the upcoming budget, is the dividend tax. In the last couple of years, this has been reduced from £5,000 and currently sits at just £2,000 and we hope this will not be another part of a wider tax cut plan which the government could target. Seeing this reduced further is only going to harm small and micro businesses.

Tompkins added: “On top of this, from an SME and self-employed accountancy point of view, it would be nice to see the government rethinking their decision regarding the abolishment of the class 2 national insurance for self-employed workers.” 

  1. Introduce an “Amazon tax” and save the high street

“Many SMEs would love access to Amazon’s accountants”

Small business owners have long demanded the government level the playing field and introduce a fair tax burden on online companies. Thomson-Cook called for clarity around the chancellor’s hints that Britain could introduce a so-called “Amazon tax”.

“Amazon’s latest accounts showed that the business paid around £4.5m in tax against a profit of £72m in the UK in the last year – a marginal rate of 6.25%. In the high-competition, low-margin environment of retail, many SMEs would love access to the accountants who made this possible.

“However, Tesco’s Dave Lewis has argued for an additional 2% tax on goods sold online to help keep the high street alive. This is, of course, the year that has seen House of Fraser, Maplin and Toys ‘R’ Us all go to the wall, and while not all of this can be attributed to the Amazon effect and wider e-commerce trends, the high street is changing far too quickly for a lot of retailers.

“Nonetheless, the issue remains that there is little, if any, ‘first mover advantage’ in levying such a tax without international consensus, something that chancellor Hammond touched on at the Conservative party conference earlier this month.

“SMEs that sell online, including those who use Fulfilled by Amazon logistical solutions, will be looking for clarity on whether this tax will have an impact on them or just the juggernauts of the e-commerce space – particularly as a blanket tax of even a few percentage points would only further hammer their margins.”

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Amazon tax

 

Will an “Amazon tax” help save the high street, or dismantle ecommerce success?

Retail groups have called for stronger government intervention to level the playing field between bricks and mortar businesses and online retailers.

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Every other policy Hammond announced

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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