The Spring Budget 2017 adjustments and what it means for you
George Osborne recently presented a Summer Budget full of measures that are intended to boost the UK's economy. While incoming changes will affect everything from Inheritance Tax to defence spending, it was the announcement of a National Living Wage (NLW) that really caught the attention of small business owners.
As of April next year, the NLW will be £7.20 for over 25s, and this figure will rise to £9 an hour by 2020. While 2.7 million workers will have their salaries boosted by these changes, higher wages could put pressure Britain's SMEs.
Setting the scene
It might seem like SME owners should be thrilled by the Summer Budget: Corporation Tax will be cut from 20% to 18% by 2020, and Employment Allowance will increase by £1000. However, the introduction of 'auto-enrolment' pension legislation offsets most of the savings created by these reforms. This means that many small businesses will have to create and finance staff pension plans from scratch.
What are observers saying?
The NLW is dividing business owners. James Poyser, co-founder of accountancy firm inniAccounts, says:
"There’s no doubt that the vast majority will find it difficult to fund it (the NLW) in addition to the new cost of pensions. Many small business owners have to pay themselves far below the National Minimum Wage to survive and this will only serve as a barrier..."
On the other hand, Michelle Wright, CEO and founder of Cause4, takes a more positive view:
"I think it's good that all businesses will need to pay the National Living Wage...employed staff should be able to live comfortably."
News of higher wages and pension contributions sounds like a win for workers. However, forcing small businesses to run on tight margins may actually impact employees negatively in the long run – restricted growth could mean more failed SMEs, and ultimately, fewer jobs. Small business owners can makes things easier by ensuring that they aren't writing off supplier debts and waiting for late invoices; higher wages mean that monthly payroll costs will grow, and businesses should respond to this change by making sure that their finances are liquid enough to cover their outgoings.
If you're an SME owner who's worried about the new NLW, contact Dukes Bailiffs to discuss how sensitive debt collection could make the change easier to handle.
Since the Chancellor delivered his budget on the 8th of July, there has been fierce debate about the pros and cons of the new measures – but nowhere more so than among SMEs.
Tax and red tape
The biggest boon is the cut in corporation tax, which will fall to 19% in 2017 and 18% in 2020, the lowest of all the G20 economies. Reforms to dividend tax could mitigate gains for some, however, as a £5,000 tax-free dividend allowance will replace more generous dividend tax credits.
Elsewhere, the annual investment allowance will be permanently set at £200,000. This figure will disappoint the many who called for £500,000, but it is undoubtedly better for businesses than the £25,000 allowance previously scheduled for 2016. This new, fixed, allowance will encourage growth and could add $1bn to the GDP by 2020.
From April 2016, the National Living Wage will be a legally binding minimum hourly rate of £7.20 an hour for over 25s, rising to more than £9 an hour by 2020.
Federation of Small Businesses (FSB) chairman John Allan says the changes “pose significant challenges for many small firms, particularly those in the hospitality, retail and social care sectors’’, and Blick Rothenberg tax partner, Frank Nash, calculates that the changes will push up staffing costs by 4%, which could affect inflation.
The Employment Allowance increase from £1,000 to £3,000 will offset these costs to some extent, although the new rule only allows employers offsetting up to 2,000 hours.
The announcement of new ‘enterprise zones’, where small businesses will pay reduced taxes, should help to create more start ups, particularly in the ‘Northern Powerhouse’ of Liverpool, Manchester, Leeds and Sheffield where transport links will also be improved by an extra £30m grant to Transport for the North. Elsewhere, a £10m programme will bring broadband to underserved areas in the South West.
We were particularly disappointed to see the issues of business rates and late payments left unaddressed: particularly in light of stronger measures to force businesses to pay their taxes accurately and on time.
With small businesses heavily burdened by late payments from larger rivals, and now facing larger wage bills, ensuring prompt payment and stable cashflow has never been more important.
For help reclaiming unpaid debt, contact a Dukes Bailiffs advisor today