The Chancellor of the Exchange, George Osborne, announced that the rate of corporation tax would fall to 19 per cent in 2017 and 18 per cent in 2020, the lowest in the G20. For start-ups and many UK small firms, this is unlikely to have a big impact.
The Chancellor announced a 50 per cent increase to the national insurance employment allowance from £2,000 to £3,000. This could help small business owners to reduce their wage bill and offset the increased Living Wage cost.
The Employment Allowance allows employers who are currently paying minimum wage, to offset the cost of the Living Wage increases up to 2,000 hours. After that, the business will be a net loser unless it’s profitable enough to benefit from the reduction in the rate of corporation tax.
National living wage
By April 2016 – £7.20/hour
The current National Minimum Wage is £6.50 for over-21’s.
By 2020 – £9/hour
Osborne pledged this amount to be compulsory for over 25’s.
What effect will it have?
It’ll have very minimal effect on employment, with 60,000 fewer jobs as a result, but alongside one million new jobs in the economy overall.
How many people will benefit?
Small firms or businesses employing a significant number of staff on the minimum wage are likely to feel this change most. The Chancellor says six million people will see their pay rise.
Driving small business investment
To encourage businesses to invest in future productivity and growth, the Annual Investment Allowance will allow small-to-medium-sized firms to make tax-deductible investments in equipment, plant, and machinery. The allowance is currently set at £500,000 with a new allowance of £200,000 set; this could potentially add £1bn to GDP by 2020.
Extended Sunday trading
It is proposed that the local council be given control over the Sunday trading hours for their area. Hopefully these local decision makers will include local and small business into the debate as it’ll have significant impact on their businesses and the community. Small firms could be adversely affected as bigger companies soak up a greater share of customer spends by staying open later.
New enterprise zones
To help create more start-ups and stimulate growth, Mr. Osborne announced the creation of new enterprise zones – areas where small firms pay reduced taxes and receive business support.
Small firms in the so-called Northern Powerhouse, comprising the major cities of Liverpool, Manchester, Leeds and Sheffield, are most likely to benefit, and the Government has invited smaller cities in these areas to submit their pitches.
The Government claimed the existing Enterprise Zones have supported the creation of over 15,000 jobs throughout England.
Access to finance
The Government plans to force the banks to share their SME credit information with other lenders and to offer to share the details of SMEs rejected for a loan with online platforms that can match them to alternative finance providers.
The British Business Bank has also been tasked with “increasing and diversifying” the supply of finance available to SMEs. The Bank will facilitate up to £10bn of finance by 2019, according to new forecasts.
Pay yourself in dividends
From April 2016, the Government will remove the Dividend Tax Credit and replace it with a new tax-free Dividend Allowance of £5,000 a year for all taxpayers.
Some business owners may pay less tax as a result. Top-rate tax payers, who currently have the option of growing their business and paying themselves dividend income at a 30.6 per cent tax rate will find that the top rate of tax on dividend income will rise to 38 per cent.
This could encourage small business owners to sell up, and take advantage of the much lower capital gains tax, which is set to remain at 28 per cent.