Anyone expecting a big reforming budget from Chancellor of the Exchequer Phillip Hammond, hasn’t been following the recent Brexit turmoil. There was a relatively lukewarm reception from most sectors, even as the Chancellor took time in his speech to confirm the ‘end of austerity’.
Having said that, the first Monday budget in history was actually pretty good for entrepreneurs and SMEs. There were a number of beneficial changes, not least with regards to rates, that should see many businesses a little better off over the next year or so.
Here are 5 takeaways from the 2018 budget that will specifically impact on sole traders and SMEs:
1. Entrepreneurs’ Relief
We work with many small businesses and entrepreneurs in the Witham and Maldon areas of Essex, and Entrepreneurs’ Relief continues to be important to those who are looking to sell their business. There was some talk of abolishing the £10m allowance but instead Hammond’s budget settled on a minor revision.
This was to lengthen the initial holding period from just one year to two. If you want to set up and then sell a business within a 24 month period, therefore, you won’t be able to claim the Entrepreneur’s Relief.
In truth this isn’t going to impact many business owners that are diligently creating a start-up and who understand it takes a good deal of time to establish a successful enterprise.
2. No Changes to VAT and Tax Thresholds On The Rise
There was some more good news for small businesses concerning VAT. Again, there had been rumours that the level was going to be slashed from the original £85,000 before you start paying VAT to £43,000. In the end there was no change.
The basic rate tax threshold rose to £12,500 which was good news for small businesses working with lower revenues and sole traders. The rate for higher rate taxpayers also went up to £50,000.
The Annual Investment Allowance saw a significant hike from just £200,000 to £1m which is great news for businesses looking to invest capital over the next few years.
3. Changes to Business Rates
One big factor that has impacted on small, independent businesses, including high street stores, is the level of rates. Over the next couple of years, for those with a rateable value less than £51,000, there are some £8,000 in tax savings to take advantage of.
There’s been a lot of talk recently about high street shops and businesses coming under increasing threat from large, online corporations such as Amazon. Along with additional investment for local infrastructure to the tune of £675 million, there is certainly help ahead for small, local stores.
4. Digital Services Tax
There has been a lot of talk too about large, online corporations doing business in the UK but paying little tax. The Digital Services Tax is due to arrive in 2020 and is designed to address this issue, at least in part. It puts a 2% tax levy on UK revenues for any tech business that has a turnover of £500 million or more.
There was some worry that start-ups and SMEs would be dragged into this tax but, in the end, the rumours were unfounded.
For many, Hammond’s budget seemed more than a little constrained and contained few real surprises. That’s generally thought to be because we are getting ever closer to a final Brexit and the uncertainty that this is likely to create. A no deal Brexit could impact severely on local business that have a UK only operation, especially if the economy suffers.
Overall, the 2018 budget delivers a pretty good mix of tax and rate relief for small businesses and should put a little more money in their pockets.
Download our full summary of the 2018 Budget here. For more information on how the Autumn Budget is likely to affect you and your business, or any accounting needs, contact the team of experts at Neil Smith Accountancy.