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The Impact of the 2016 Budget on SMEs

If you run a small or medium-sized business, the chances are you are very pleased with the measures announced in the 2016 budget. George Osborne called it “a budget that backs business”, and many economists believe that is exactly what he delivered.

Interestingly, these changes are just as important for society as a whole as they are for business. Successful, profitable businesses employ more people, pay better wages and contribute to GDP. Eventually, these companies also end up contributing more to the government’s coffers, which gives them more funds to spend on things like healthcare. In addition, the stronger the economy is the more likely it is that the government will be able to deliver their manifesto promises.

Below is a summary of the main announcements that affects small or medium-sized businesses in the UK. With have also included a few tips to help you to take advantage of the changes.

Business rate cuts

From April 2017, small business rate relief will rise from £6,000 to £12,000. These changes mean that small companies working out of properties with a rateable value of less than £12,001 will pay nothing in business rates.

There will also be tapered relief on properties valued up to £15,000, and the higher rate relief threshold will rise from £18,000 to £51,000. The Chancellor believes that this change will mean that 600,000 firms will end up paying no rates at all. A further 250,000 will pay lower rates than they do now.

This change is perceived as an important one because it reduces the fixed costs that many firms struggle to cover every year. On average, those 600,000 companies that will end up paying no business rates will reduce their overheads by £6,000, and do so overnight.

Reductions in Corporation Tax

By April 2020, the Corporation Tax rate will fall from 20% to 17%. This will allow companies to keep more of their profits, generating a significant pot of additional cash that business owners can potentially reinvest.

The reduction in capital gains tax and entrepreneur relief

The reduction in capital gains tax will help business owners in two ways. This is mainly because those that invest in business will be able to keep more of the money they make.

This will mean that more investors will want to invest, which means a bigger pool of funding will become available. Being able to borrow easily is very important for those companies that want to expand.

The extension of the Entrepreneur’s Relief scheme will also encourage investors to make more funds available. For those long-term investors that put funds in unlisted companies for more than three years, the level of relief has been doubled.

A higher capital gains tax will also benefit those companies that have property to sell. Potentially, they will be able to keep more of the profit from the sale.


Stamp duty reform for non-residential premises

Firms that need new business premises will benefit from the reform of stamp duty land tax (SDLT). In the future, a slice system will be used to collect the stamp duty on non-residential properties like offices, warehouses and retail units.

Currently, SDLT is charged as a percentage of the purchase price. This means that if a firm pays just £1 above the threshold for their business property, they can end up paying three times more in tax. Once the new slice system is introduced, this will no longer be an issue.

Businesses will pay 0% for the portion of the transaction that is valued up to £150,000. A tax of 2% is paid on the £150,001 and £250,000 portion of the purchase price. The rate of tax for anything over £250,000 is 5%.

This tiered stamp duty system will make it far easier for growing firms to find and buy the right type of business properties. They will no longer have to make do with something unsuitable to avoid a large tax bill. This reform will mean that over 90% of businesses will end up paying less stamp duty when they buy commercial property.

Easier access to alternative lending sources

The Chancellor also mentioned the fact that those firms that were turned down for finance would be directed to other lending sources. This should mean that more companies actually end up securing the funds they need to be able to expand.

The fuel duty freeze

Most businesses in the UK rely on transport in some way. Therefore, the continuation of the fuel duty freeze is good news, because it helps to keep costs under control.

Increased investment in infrastructure

The fact that more infrastructure is due to be built is also potentially good news for business owners. Many will benefit from improved rail and road networks, which will make it easier to move around the country.

Even the investment in flood defences has the potential to benefit many UK firms. They will be protected from flood damage and business disruption. In addition, some firm’s insurance premiums could fall.

Reforms of the tax system

Some of the most interesting changes are those that will be made to the tax rules. The Chancellor is working towards closing the loopholes that some multinationals currently use to reduce their tax bill drastically. The Chancellor believes that these changes will generate an additional £8bn in revenue, which he plans to invest in helping small businesses.

This is great news for the owners of SMEs because some of those funds will eventually end up helping them to grow. Additionally, the fact that some of their biggest competitors are going to be paying more tax should make it easier for small firms to compete. Many large firms are going to have to put their prices up slightly to help them to cover their bigger tax bills. This should close the gap enough to allow smaller businesses to compete more effectively on price, rather than just on quality and personal service.

Making the most of the changes

As you can see, the 2016 budget is one that creates opportunities for UK businesses. Now is the time to review the changes and work out how your company can benefit. Those firms that do this quickly will be the ones that surge ahead of the competition.

Now is the time to update your account spreadsheets to reflect the changes. Doing so will allow you to see how much extra cash you will have available in the future. This is money that you will be able to invest in training, new equipment, product development and marketing. Once you have identified how much additional cash will be available you will be able to review and update your business plan.

Your accountant can help you to understand the changes announced in the budget, and how to make the most of them. They will also update your accounts, and help you to produce a new business plan.

Posted by Mark
April 6, 2016
Small Business

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