The 2015 summer Budget has been announced, but many SME’s have been left feeling disillusioned. Here we look at the impact of the Budget on UK businesses…
This week Chancellor of the Exchequer, George Osborne, announced his seventh Budget, and the first all-Conservative Budget since 1996. In his opening statement he explained that the UK doesn’t build, train or invest enough and how this budget will address these issues. He also stated how this budget was to act as an advert to the world - The UK is open for business!
The Conservative government rallied a vast amount of support from business owners in this year’s election. As a result many believed that this budget would offer great benefits to those creating jobs and stabilising the economy, yet this does not appear to be the case.
Elements of the Budget that impact businesses:
New National Living Wage
From next April, workers over the age of 25 will benefit from the new national living wage that will start at £7.20 and replace the £6.50 minimum wage, which currently applies to those over the age of 21. By 2020 the national living wage will rise to £9 per hour. It is hoped that this move will decrease unemployment and increase each SME’s investment in their staff. This is great news for employees, yet many businesses are concerned that these increased rates of pay will mean they will struggle to pay the staff they have, and leave them unable to hire the resource required to grow.
Corporation Tax Cuts
SME’s will benefit from a 19% corporation tax cut in 2017 and an 18% cut in 2020. As reported in TheManufacturer.com, Chief economist at EEF, Lee Hopley believes that, “Businesses large and small will also welcome the Government giving forward visibility of the phasing of lower Corporation Tax rate as public finances allow. Importantly, a new corporate tax roadmap promised by April 2016 sees the Chancellor maintaining good form on giving business visibility about future priorities for reform.” This is a welcome move to counter the new national living wage, and appease SME’s as it means that businesses can keep more of their profits.
An increase of £3,000 in employment allowance will allow small businesses to hire four staff on the national living wage, without having to pay national insurance. This increased funding will support start-ups and small businesses that are growing, by enabling them to hire the resource required to increase profits, in-turn contributing to the UKs strengthening economy. As Genevieve Moore stated on MoneyObserver.com, “The decrease in corporation tax and increase to employment allowance for small companies will help fund the cost of the new minimum wage, so companies don't have to bear the costs.”
Dividend Tax Credit
From April 2016 dividend tax credit will be replaced with a new tax-free dividend allowance of £5,000 a year. This could mean that smaller business owners pay less tax, however, larger businesses that are top-rate tax payers and currently paying themselves dividend income at a 30.6% tax rate will find that this will rise to 38%. This is a move to regulate and control the way business owners take dividends. It is likely to be welcomed by smaller, growing businesses who will be rewarded with the ability to take more money home, whereas larger businesses will have to make a larger tax contribution, sharing their wealth to support the UKs economy.
Sunday Trading Laws
New laws could mean that many big retailers can stay open for longer on Sundays, potentially taking a greater share of weekend trading profits from smaller retailers. This could put a strain on smaller businesses, however each local council will be responsible for setting regulations. As reported on the BBC.co.uk, John Allan, FSB national chairman, states that, “The FSB remains concerned about the impact of any change to Sunday trading rules on smaller retailers.” Councils that set the regulations will have to act in the best interest of their area and the businesses within it, which could result in SMEs across the board benefitting.
Director General of the CBI, John Cridland described the Budget as “double edged for business” saying on TheManufacturer.com, “The further reduction in Corporation Tax is a welcome surprise but tax reductions for employers don’t appear to match the businesses most affected by a rise to £7.20 in the National Minimum Wage next April – a 7% increase.”
Many of the benefits businesses will see will be mirrored by losses, but as Margareta Pagano wrote on the Independent, “George Osborne’s message to British business – big and small – was clear: you can keep more of your profits through lower taxes and more dividends, but you’ve got to share the proceeds with your colleagues by paying the living wage.”
The full impact of the 2015 summer Budget will not be felt until these measures are put in place. For more information, view the full budget here.