If you’ve been more than a little confused about changes to the budget so far, you’ve got good reason. Only a week after the spring budget was announced, Phillip Hammond delivered a drastic U-turn, reversing his proposed increase of national insurance contributions for the self-employed.
While this came as good news for many, the ‘chaos’ and uncertainty surrounding the budget has left many businesses confused about what changes really are being implemented, and how they will be affected. To help, here are the 3 main changes to the budget that will affect small businesses in the UK.
3 key changes for businesses
1) Dividend Allowance Reduced to £2000.
The tax-free allowance which only came into force a year ago, will be reduced from £5000 to £2000 in April 2018. This stands to affect those who own small businesses and pay themselves in dividends alongside a small salary. It could have a particularly big impact on those who work in small family companies with spouses or partners.
2) Corporation tax will be 19% from the 1st April this year with a plan to be at 17% in 2020.
This will mean that the UK has the lowest corporate tax rate in the G20, and it has been designed to attract inward investment in light of the uncertainty that Brexit negotiations could bring. Backed by the government as offering greater stability to businesses due to less frequent changes to tax rates, some argue that this is cancelled out by wider tax changes beyond corporation tax.
3) Making Tax Digital will start in April 2018 for those sole traders and partnerships above the VAT threshold.
Those under the threshold will have an extra year to prepare for MTD. This new measure, where businesses will be required to file quarterly tax returns in a digital format, has been met with some apprehension from small businesses. For those under the threshold, they will have an extra year before starting MTD, giving them more time to prepare for the changeover to digitalised tax returns.
What will it mean for you?
Despite how the conservative government have presented the budget, it’s clear that many changes ignore the importance of small businesses to the economy. In many ways, the new budget fails to acknowledge the personal sacrifices made by small business owners, as well as the degree of risk and initiative involved.
While the delay in Making Tax Digital for those businesses under the VAT threshold is welcome, the digitisation of tax returns represents a major change to the way businesses manage their accounts in the UK, and as such business owners want to see more details and more clarity around this new legislation. The prospect of quarterly tax returns has, understandably, alarmed many businesses – your accountant should be able to provide support and guidance to ensure that you are up to speed and prepared for digitisation when it is introduced for all in 2019.
In particular, the reduction in the tax-free dividend allowance will have a big impact, and be a large cause for concern for those small business owners that rely on dividends as a source of income. Coming at a time when smaller companies are already worried about a rise in business rates, certain changes in the spring budget have left many SMEs feeling targeted.
The latest budget may have come as a blow to some UK businesses, but there are opportunities to manage your finances so you don’t bear the brunt.
If you’ve any queries or concerns you’d like to discuss, get in touch with us here at Chippendale and Clark – we don’t charge for a conversation and we’d be happy to offer our help and advice on a no-obligation basis.