Budget 2018 – what should the Chancellor do for SMEs?

In the fifth of our thought leadership pieces ahead of the Budget on 29 October 2018, we take a look at what the Chancellor could do for Small and Medium-Sized businesses (SMEs).

We sat down with Bishop Fleming Partner and Head of Tax, Andrew Browne, to get his thoughts on the forthcoming Budget.

Q1 – Are there any key measures you would wish to hear announced in the Budget to help SMEs?

We need to help the high street by addressing the business rates issue and how they tax the online distributors.  It is currently an unfair market, which means the high street cannot compete.

Q2 – There is speculation that Entrepreneurs’ Relief may be scrapped in the Budget. If this were to happen, what impact would it have on the SME business community? 

This would be a backward step as the capital rewards create entrepreneurship, which drives employment and growth.

Q3 – The rate of corporation tax is due to drop from 19% to 17% from April 2020, but the Chancellor may choose to scrap this and keep it at its current rate. Should the reduction go ahead?

This is debatable.  19% is a very competitive rate anyway.  However, with Brexit they have to make the UK attractive to multinationals to help maintain employment.  In the main I would not like to see an increase.

Q4 – Making VAT Digital is planned to happen on 1 April 2019, at the same time as Brexit. Should it be delayed to give traders more time to prepare?

The cost of undertaking MTD for VAT is significant and for no real gain.

VAT returns are electronic anyway and it is still only the box 9 info that is being submitted, so there is no additional information being received by HMRC.  They should focus the resources they have on solving the duty border issue instead of messing around with a system that already works and has limited benefit from change.

Q5 – The Chancellor is under pressure to reduce the impact of business rates on SMEs. What should he do to reform this tax, if anything? 

If you are going to make it fair you would probably need to look at a local turnover tax

Q6 – SMEs continue to suffer cash flow issues due to late payments from large customers. The government has suggested that large companies could be required to have a director in charge of supply chain practice to speed up payments. Can the Chancellor do more to help ensure SMEs are paid sooner?

It’s quite difficult, as ultimately the large customer has the power as the small company wants to supply them due to their significance. In reality, the small business has to ensure it manages its finances well.

Q7 – Post Brexit there will be restrictions on the freedom of movement of EU workers coming to the UK. What can the Chancellor do to reduce the inevitable skills gap that SMEs will experience as a result of these restrictions?

They need to make sure movement happens.

There will be significant shortages and not just in skilled occupations.  Tourism is going to be significantly affected as there is a high percentage of overseas employees employed.

It appears that UK residents do not want to do these roles, so they need to source from overseas.  Brexit is having an affect already as the fall in the value of the £ has already meant that overseas workers do not see the economic benefit

Q8 – Since April 2017 the IR35 legislation has forced public sector organisations that use contractors to establish if those workers are employees or self-employed. There is speculation that this will be rolled out into the private sector either in 2019 or 2020. How would this impact on the SME sector? 

This would significantly affect the employment market, with many more individuals becoming employed.  With the rise of the gig economy, the numbers are very significant.

Apart from the significant increases in tax for the individual, the cost of employment is also increased so it would have a potential effect on employment numbers.

Q9 – Should the Chancellor introduce more financial help to encourage SMEs to export more?

The weaker pound should help, although the cost of imported raw materials can also have a negative affect. It is important that the Government helps.  This is not necessarily in terms of tax breaks, but grants, advice and trade missions.

Q10 – Should the Chancellor do more to invest in UK infrastructure to help SMEs such as better broadband and roads?

Yes, absolutely.