Bishop Fleming Partner, Fleur Lewis, takes a look at what the 2017 Autumn Budget had to offer Small and Medium-Sized businesses.

The Budget on 22 November 2017 left most business owners wondering what was in it for them. Not a lot on the face of it; just a little sprinkling of fiscal tonic, alongside some worrying developments.

Business rates

There was welcome news on business rates, with the scrapping of the so-called “staircase tax”, which had imposed extra rates on firms using different floors in a building.

Future business rate revaluations will now take place more frequently (every three years instead of five) from 2022, and intermediate rises would be linked to the lower Consumer Price Index (CPI), rather than the higher RPI.

But we have yet to see any progress on a root-and-branch reform of the business rates system that would align it more fairly and closely to business performance. Bishop Fleming has been calling for this fundamental reform for many years.

Investment

The Chancellor is spending £500m on a range of technology projects, alongside a further £2.3bn for large company R&D tax credits. This is great news, though it was disappointing that small and medium-sized companies were not also offered improved R&D help.

Philip Hammond is also doubling the Enterprise Investment Scheme (EIS) allowance to help start-up businesses. This could be very important if the European Investment Fund is no longer available post Brexit.

There will also be a new £1.7bn ‘Transforming Cities Fund’ for cities outside London to have more control over investments in transport and infrastructure. Provided the regions get a fair share of this, it should help them improve their physical and digital infrastructures to make businesses outside of London more competitive.

As well as more funds for technology, there are also additional funds for education in science and maths, and a new retraining partnership with industry and the trade unions to boost digital skills.

VAT

There was speculation before the Budget that the Chancellor would reduce the VAT threshold from its current £85,000, following an Office of Tax Simplification recommendation. So there was tangible relief when Mr Hammond decided instead to leave the threshold as it was, for the next two years at least, while the government consults on a redesign. But freezing the threshold in this way will force thousands more businesses to register as they approach the so-called ‘cliff edge’. This is not helpful to small businesses.

Making VAT Digital is still meant to be happening on 1 April 2019, which is not that far away, and coincides with the UK leaving the EU. As the software and detailed rules are far from being ready for this, we can perhaps expect the date to be a movable feast.

A welcome development is that the government is looking at reforming the current VAT penalty regime to replace the onerous VAT surcharges with a new points-based system.

IR35

A potentially unfriendly business measure is the Chancellor’s intention to consult on extending the IR35 reforms introduced into the public sector earlier this year into the private sector. This would cause chaos for the private sector, as it has already done for the public sector, by forcing business owners to work out whether a contractor they engage is employed or self-employed. To impose this case-law-based uncertainty on businesses that already operating in an uncertain economic environment, would be a hammer blow.

Cars and vans

The Chancellor announced further increases in benefit charges for cars and vans, and was particularly unfriendly towards diesel cars. The Company Car Tax diesel supplement will rise from 3% to 4% in April 2018. This is used for calculating the taxable benefit of a diesel car available for private use, and it will apply to diesel cars registered on or after 1 January 1998 that are not certified to the Real Driving Emissions 2 (RDE2) standard. The supplement will not apply to diesel hybrids or to vehicles that are not cars, so vans are not affected – at least for the moment.

This change gives employers with diesel car fleets very little time to respond, which is unfair and will cost them dearly. It could certainly push some employers to accelerate their replacement cycles to reduce the potential extra tax charge and Class 1 NICs.

So what now?

Overall, the Chancellor’s “balanced Budget” was hardly exciting or transformative, which is worrying as there won’t be another one until November 2018 – just four months before Brexit. The tax system needs to be less complex and more geared towards supporting businesses post Brexit, so it is disappointing that the Chancellor was not more helpful.

For further information, please contact Fleur Lewis, or a member of our Business Taxes team.

[This article was first written for Boating Business, for which Fleur writes a monthly column]

 
 
 

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