Peace of mind
Firstly, the staircase tax has been scrapped. Some 80,000 small businesses faced bills of up to £15,000 when their business rates rose earlier this year, and many were unprepared for this. The Chancellor has done the right thing by reinstating original business rates bills.
In another boost for small business and the self-employed, Hammond scrapped plans to make firms with a turnover of £85,000 or less start paying VAT. There had been speculation Hammond might lower the threshold to bring it in line with other European countries but, for now, that’s on hold for two years.
Doubling the Enterprise Investment Scheme (EIS) limits for innovative companies will encourage even more private investment. The government now needs to simplify the EIS rules. Investing in EIS has been encouraged by successive governments to raise funds for many small, unlisted businesses who attract around £1.6bn a year. However, it wasn’t all good news for EIS as Hammond confirmed the type of companies that could be invested in will be restricted. As ever, the devil will be in the detail but properly targeted, this could encourage private investment in innovation.
The Patient Capital Review, which was completed earlier this year, revealed that UK start-ups were experiencing a lack of scale-up funding after they became ineligible for smaller venture capital investments. Furthermore, in a constrained bank-lending environment, fast-growth UK businesses need the right support and finance to help them as they scale up. The £2.5bn seeded to the British Business Bank will help get timely liquidity to these high-growth businesses enabling them to grow and achieve their ambitions.
After a huge backlash to changes in business rates earlier this year, it looks like the government has heard loud and clear by removing the staircase tax but there remains a lack of clarity about how business rates should be paid. There were discussions about a self-assessment style approach whereby firms would submit their own valuations to the government. This would place a huge additional admin burden for small firms that could spell the end for some. This Budget would have been a great opportunity to clarify what the direction on this is.
Furthermore, there was speculation about possible changes to VAT. Whilst there was no increase, there remains some uncertainty. It has stood at 20% since 2011 (when it went up from 17.5%). It is a fantastically lucrative part of government income, now hauling in £125bn a year compared to £175bn for income tax. Post-Brexit, chancellors will have greater flexibility to set reduced VAT rates (the EU requires that member states charge VAT, and only allows a few reduced rates), but given the state of the public finances, anything more than a cosmetic change is unlikely.
Step in right direction
Business may take the view this is a piecemeal Budget for them in that it didn’t address core issues such as business rates, but it is a step in the right direction. Tackling structural problems around productivity and growth were clearly the priority for this Budget but business has got a good deal.
Anil Stocker, co-founder and CEO of MarketInvoice