Yesterday we saw Philip Hammond’s third budget since he became chancellor and the first since last June’s general election. Billed as the Brexit Budget it has, as always, attracted mixed reviews. There were quite a lot of announcements about initiatives and changes across many parts of the UK economy, so here at 1tap we thought we’d help cut through the noise to provide you with a summary of the key announcements that will affect the self employed and small business owners. Here is the good news and bad news:
The bad news:
The first thing to note is that the reality of Brexit is being firmly predicted in the revised UK growth forecasts for the next five years. The 2017 forecast has been slashed from 2% to 1.5% and will then drop to 1.3% in 2019. It will hopefully climb again to 2021, but only back up to 1.6%. In recognition of this, the chancellor has pledged to set aside £3bn over next two years to prepare UK for every possible outcome as UK leaves EU.
If you currently operate as a ltd company mainly because of the tax benefit, you might want to review your position and think about sole trader status as the chancellor announced he was slashing the tax-free dividend allowance from £5,000 to £2,000 from April 2018. This means that the tax savings gap between operating as a ltd company as opposed to a sole trader is rapidly disappearing.
National living wage up
If you employ staff it is going to cost you more from April 2018 as the National Living Wage will rise by 4.4%, from £7.50 an hour to £7.83. Few people disagree that the raise is a good thing, but it will mean you need to factor it into your costs for 2018.
The good news:
More personal tax relief
The tax-free personal allowance on income tax is to rise from £11,500 to £11,850 in line with inflation in April 2018. It’s not going to make you rich, but it equates to around a £100 saving per year if you pay the lower rate of tax. If you are lucky enough to earn enough to be a higher-rate taxpayer, the threshold here will increase from £45,000 to £46,350
The threshold below which firms don’t need to register will remain at £85,000 until at least 2020. It remains one of the highest in the world, except for Singapore and dwarfs the EU average of £20,000. However, non-VAT registered businesses should be mindful of the fact that this announcement was made against strong calls for the threshold to be reduced to £25,000 as it could raise as much as £2billion each year for the Exchequer and bring as many as 1.5million small businesses into the system. It can only be a matter of time before the threshold is lowered to help boost the government coffers.
Business rate rise halted
Chancellor Hammond also heeded to calls to scrap the near four per cent rise in business rates due next April by announcing a switch in the inflation measure used to calculate the rates each year from the RPI to CPI from April 2018 – two years earlier than originally planned.
EIS investment scheme doubled
The current EIS investment limit will double for people investing in knowledge-intensive companies, potentially unlocking an additional £7 billion of growth investment. However, it wasn’t all good news for EIS as Mr Hammond confirmed the type of companies that could be invested in will be restricted. And while we’ll have to wait to see what that restriction will mean, properly targeted, this could encourage private investment in innovation.
Research and development increase
Young enterprises involved in the research and development spaces are among the biggest winners following the Autumn Budget. The government will ring fence an extra £2.3billion of its funds for investment in research and development. It also upped the main tax credit affording for young firms operating in the space from 11 per cent to 12 per cent.
In summary, it would appear that there is more good news than bad for the self employed and small businesses in the UK. It would appear that Philip Hammond is out to woo them in this Autumn Budget as they are often described as the backbone of the UK economy and helping them is seen as imperative as Britain prepares itself for life outside the European Union.