On the afternoon of 29 October, Chancellor of the Exchequer, Phillip Hammond announced an early Autumn Budget, exactly five months before the UK is due to leave the European Union.
This second Autumn Budget from the Chancellor cites the latest economic forecasts from the Office for Budget Responsibility, revealing that the UK growth forecast has been upgraded from 1.3% to 1.6% for 2019. At the same time, Mr. Hammond announced that public borrowing for the 2018-2019 year is set to be £11.6 billion lower than previously forecast in the Spring Statement.
The Autumn Budget is said to be the most “small business-friendly” budget ever produced by Mr. Hammond, and included a number of revisions and policies aimed at helping SMEs and entrepreneurs.
What does it mean for small businesses?
A key announcement from this budget is the two-year cut in business rates for small retail properties in England, from April 2019. These cuts, worth £900 million, coupled with a £675 million fund to help rejuvenate and revitalise high streets, support local, independently owned businesses and startups in the fight against larger corporations, protecting the small businesses from being overpowered or bought-out.
A second important feature of the new budget is the revision of Entrepreneurs’ Relief. The Chancellor chose to leave Capital Gains Tax (CGT) unchanged, instead focusing his efforts on tax relief for entrepreneurs. The minimum period during which certain conditions must be met in order to qualify for Entrepreneurs’ Relief has been extended from one year to two years. In addition, entrepreneurs pay a lower rate of tax, 10% compared to the standard 20% on capital gains, when they sell or give away all or part of their company. The same measures also cover entrepreneurs who sell or give away all or part of their shares in their company, as well as trustees who sell or give away their trust business assets.
Additionally, the budget added two new tests to the definition of a “personal company” in regards to Entrepreneurs’ Relief. In combination with the already existing conditions of “share capital” and “voting rights,” the new conditions require an entrepreneur to be beneficially entitled to 5% of the company’s distributable profits, and 5% of the company’s assets available for distribution to equity holders.
A third takeaway of the fall budget is the announcement of the new Business rates relief measure, which states that retail properties with a rateable value below £51,000 will see their business rates
bills cut by a third for two years, from April 2019. Mr. Hammond claims that this tax cut will save £8,000 a year for up to 90% of all independent stores, pubs, and restaurants.
Additional measures and announcements
The 2018 Fall Budget also introduced a number of other measures that may be helpful to SMEs and entrepreneurs, including temporarily increasing the Annual Investment Allowance (AIA) from £200,000 to £1 million from 1 January 2019 until 31 December 2020. This change will support and aid businesses and entrepreneurs seeking capital expenditure in the New Year.
Other measures announced in the budget include a new limit on the amount of payable tax credit that can be claimed by a company under the R&D SME tax relief, beginning 1 April 2020; non- resident UK companies that carry on a UK property business will be charged corporation tax rather than income tax as at present, from 6 April 2020; and exemption from the responsibility for operating the existing off-payroll working rules, also from 6 April 2020.
Also included in the budget was a new 2% tax on revenues of certain digital businesses that derive value from their UK users. Known as the “UK digital services tax,” and targeting tech companies with sales over £500 million, this new tax policy purposefully avoids the UK startup and SME market, possibly creating an opportunity for growth and development, and to gain market share. This measure comes into effect from April 2020.
Despite reports of the contrary, the Chancellor chose not to lower the minimum required turnover amount required to pay VAT, and decided to leave the minimum at £85,000. In fact, Mr. Hammond chose instead to raise the income tax personal allowance, from £12,500 for basic rate taxpayers, with the higher rate also increasing from £46,350 to £50,000 in 2019.
Small businesses and entrepreneurs will find that many of the measures and policies announced in the 2018 Fall Budget operate in their favour. Supported by initiatives designed to save money for entrepreneurs, cut taxes, and increase the ability for small businesses and startups to compete on a larger scale, the growing entrepreneurial community in the United Kingdom will continue to thrive and develop.