FUNDING for start-ups, corporate tax cuts, and high-speed broadband – at first glance, the Autumn Statement seemed to be full of good news for small- and medium-sized (SME) businesses. But zoom in on the fine print and a different story emerges. While there are certainly a few bright spots for SMEs in the coming year, economic uncertainty and strict taxation means that many businesses are in for a tough few years.
Here are the key things that SMEs should take away from the Autumn Statement – the good, the bad and the ugly.
There are more funding options than ever before
‘Innovation’ seemed to be the main buzz word of the Autumn Statement, as Chancellor Philip Hammond promised to pour £2bn into R&D initiatives to encourage innovation in the UK. This is great news for start-ups who can expect plenty of extra support in the coming years. Existing businesses will have access to a £400m venture capital investment fund, which will be administered by the British Business Bank (BBB). The BBB has also expanded its Enable funding programme to P2P lenders, meaning that SMEs will have easier access to alternative finance solutions than ever before.
Multinationals will (finally) pay their dues
A number of small businesses have openly praised the chancellor’s pledge to crack down on tax-evading multi-nationals, which have saved billions of pounds through complex tax avoidance schemes. However, confirmation that corporate tax rates will be dropped to 17 per cent offered reassurance that Brexit Britain is still business friendly.
“In a finely balanced Autumn Statement, one thing was clear: UK-based businesses are to be rewarded at the expense of foreign firms,” said Toby Ryland, corporate tax partner at chartered accountants HW Fisher & Company. “Buried in the detail of the Treasury press release is a provision that will pull all companies with UK taxable income into Britain’s corporation tax regime.
“This is likely to include tens of thousands of offshore companies that currently pay minimal UK tax, and could see many hit with a substantial capital gains tax bill.
“With UK corporation tax set to fall to the lowest level of any major economy in the world, by tightening the rules for foreign firms seeking to use Britain as a tax haven the chancellor has given multinationals a stark choice – come to the UK for its low corporation tax, but expect to pay the tax on all your UK income.”
Running costs should stay down
Yes, inflation is rising and economic growth is slowing, but the chancellor handed some relief to small businesses by freezing fuel duty, thus ensuring that import/export businesses won’t be too vulnerable to fluctuations in the price of oil.
While the minimum wage was raised (from £7.20 to £7.50 per hour), it is still far below the Living Wage of £8.25 per hour and it won’t affect employers until April 2018.
Everything is going digital
Time is running out for those business-owners who are still relying on pen and paper – the Autumn Statement could not have been more clear about its digital ambitions. In the very near future, all tax returns will be paperless and the chancellor wants SMEs to be among the first in the country to benefit from the new ultra-high speed broadband infrastructure that will receive £1bn in government funding.
New VAT rules will cause headaches for smaller businesses
One point of contention was the decision to shut down the VAT flat rate scheme and introduce a 16.5 per cent rate from next year. This is likely to amount to higher VAT bills for the country’s smallest businesses, sole traders and contractors, and may counteract some of the good news offered elsewhere in the Statement.
“There’s not much good news in the Autumn Statement for small business owners – and especially for contractors,” said Ed Molyneux, chief executive and co-founder of FreeAgent. “Despite the chancellor announcing more funds to develop management skills, a rise in venture capital funds through the British Business Bank and an increase in rural rate relief, there’s actually very little to be cheerful about.
“In particular, the decision to shut down the supposedly-inappropriate use of the VAT flat rate scheme by introducing a new 16.5 per cent rate from 1 April 2017 for ‘businesses with limited costs, such as many labour-only businesses’, is likely to be detrimental for many contractors across the UK. It will essentially mean an increase in the amount of VAT that those businesses have to pay.”
The more things change, the more they stay the same
In reality, there was nothing in the Autumn Statement that will significantly affect the day-to-day operations of SMEs in the UK.
As Ryland said, this was “a cautious Autumn Statement that seemingly had ‘do not rock the boat’ as its primary aim”. However, with sluggish growth predicted in 2017 and a Brexit plan that has yet to be revealed, this may well turn out to be the calm before the storm.