Jonathan Hickman 30 Oct 2018 08:25am

What the Budget means for small businesses

As this was probably the last Budget before Brexit, SMEs will have been looking for some reassurance from the chancellor that they would be supported through the process. Without directly announcing Brexit subsidies for business, the chancellor did notably loosen his spending plans in an attempt to boost the economy.

The business rates reliefs are good news for SMEs – the relief for 2019/20 means that business rates are effectively frozen for all businesses with a rateable value of £51,000 or less.

The reduction in corporation tax to 17% from April 2019 was confirmed and online SME busineses will be relieved that the threatened new tax on digital services from April 2020 will only affect global businesses with an annual turnover of £500m. The increase in the Annual Investment Allowance to £1m from 1 January 2019 will be welcome although it remains to be seen if the ability to claim a new 2% allowance on non-residential structures and buildings from 29 October 2018 onwards does encourage investment. However, these countered by the reduction in the special rate allowances for plant and machinery from 8% to 6% from April 2019.

Read all the news, analysis, and comment on this year's Budget here

Businesses operating as personal service companies or using them as a workforce will be pleased that the Chancellor has delayed the expected extension of the off-payroll labour rules to private sector employers until April 2020. These rules will apply only to large and medium sized businesses although, as yet, there is no further definition of the small businesses that will be exempt – this will no doubt form part of the consultation process on the proposals.

VAT MTD will go ahead as planned from April 2019 but small businesses will be grateful that the VAT registration thresholds will not change. The consultation on a new tax on plastics will cause more administrative burdens for catering and retail businesses. All businesses will welcome the commitment to spend more on the UK’s road infrastructure and the ongoing freeze in fuel excise duties.

All employers will face increased staffing costs in costs from April 2019: not only will the national living wage go up by 4.9%, auto-enrolment employer pension contributions will increase to 3%. Employee contributions will also rise to 5% so there may be more pressure for pay rises although employees will get a net pay boost from April 2019 with increases in the personal allowance and basic rate band.

Business owners will be relieved that rumoured changes to Entrepreneurs’ relief were not as extreme as some had forecast but there was an immediate strengthening of the 5% test and an extension of the qualifying period to 24 months for disposals from April 2019 onwards.

Did the chancellor’s Budget instil confidence and certainty for businesses? Given his limited options at this point in time, the idea of a Treasury reserve to boost the economy in the case of a hard Brexit seems sensible – although whether this calmed any nerves is perhaps debatable. I suspect that many businesses will have already started building their own Brexit reserves and may continue to add to them for a little while yet.

Jonathan Hickman is a tax partner at BDO