In partnership with Bloomberg BNA five leading CIOT members have written analyses of the measures in Autumn Budget 2017. Tina Riches of Smith and Williamson, Chair of CIOT's Owner Managed Business Sub-committee, looks at measures in the Budget that may impact on small businesses.
The Chancellor has set out his fiscal plans in which he treads the fine line between fiscal austerity and lavish spending. The Autumn Budget has signalled limited changes for owner managed businesses (OMBs), while providing some sensible measures to encourage learning, investment and development, to encourage growth.
It is worth noting that this is the first fiscal event in the new annual tax policymaking cycle. The government’s aim in introducing an Autumn Budget is to provide greater tax certainty for taxpayers by not only consulting them further in advance of change but also having less frequent changes, largely made before the tax year starts.
The Treasury’s Red Book has confirmed that plans for Making Tax Digital (MTD) have not changed since the summer and as legislated for in the recent Finance (No. 2) Act 2017. The timetable for implementation currently extends only to VAT registered businesses with turnover above the VAT threshold. They will be mandated to keep digital records and provide quarterly updates to HMRC for VAT purposes from April 2019. Ultimately, HMRC anticipates most businesses being required to report digitally, although this will not be before 2020. There remain significant hurdles to overcome before that becomes a reality. The cost of the delays is significant, amounting to an estimated £585m a year by 2022/23.
Business rates are set to rise from 1 April 2018 in line with the Government’s announcement in March this year, based on the latest revaluation, which came into effect on 1 April. To mitigate concerns expressed by businesses, which could see significant increases in bills across the UK, the Chancellor has announced a welcome package of further reliefs, including:
- moving to using the CPI instead of RPI to uplift rates;
- extending the £1,000 relief for pubs;
- shortening the revaluation period to reduce the impact of rises; and
- permitting businesses to elect out of the ‘staircase tax’.
On indirect taxes, one cannot avoid mention of Brexit. One of the headline messages was that the Chancellor is seeking ‘free and frictionless trade in goods and services.’ On VAT, as well as reporting changes, the Chancellor has considered the report of the Office for Tax Simplification on the VAT registration threshold. The Chancellor seems to acknowledge the problems of the cliff edge at the threshold and the report’s conclusion that our high threshold distorts competition and disincentivises business growth. But he also highlighted that the high threshold keeps many small businesses out of VAT altogether.
As a result, he has decided not to reduce the threshold at the moment, although he has frozen it for two years at £85,000 and plans to consult on ‘whether its design could better incentivise growth’. Given many businesses will in time have to move to quarterly reporting, the jump to being VAT registered might not be so great as in the past.
Individuals considering investing in a business should be interested in the doubling of the Enterprise Investment Scheme (EIS) and the Venture Capital Trust scheme annual allowance for investing in knowledge-intensive companies. This is expected to increase investment in growing businesses. The corollary of this is a new measure to reduce relief for low-risk investment. This is expected to hit businesses where a significant proportion of the sums invested are in land and buildings as opposed to working capital.
Other growth areas that are being encouraged through the Budget are companies incurring expenditure on R&D. Here the available R&D expenditure tax credits are being increased from 11% to 12% which will cost up to £175m by 2022/23. However, this will only benefit large companies, with the SME rates not changing.
In an effort to improve air quality, the Government plans to invest in a new Clean Air Fund and pay for this by increasing revenue in two related areas for vehicles that do not meet new emissions deadlines.
- a Vehicle Excise Duty (VED) supplement to apply to new diesel cars that are first registered from 1 April 2018; and
- an increase in the existing Company Car Tax diesel supplement from 3% to 4%, from 6 April 2018.
This will affect companies with larger fleets of old vehicles, but will not affect vans.
There was no mention of the planned changes to the rules for the allocation of partnership profits between partners, so it assumed that these are still going ahead. The proposals are to ensure that the allocation of profit for tax purposes between partners must mirror the allocation of commercial profit, so each partner takes a share of disallowable expenses. In addition, further information will be required on partnership statements for each partner that is itself a partnership.
All in all, there were few measures that affect OMBs, particularly smaller ones. As change is a cost to small business, this is to be welcomed, particularly given the uncertainties around Brexit. It really does seem to be a case of a cautious government doing the minimum, while handing out a few incentives to growing businesses.
By Tina Riches, Chair of CIOT's Owner Managed Business Sub-committee, and Tax Partner, Smith and Williamson
This article was first published by Bloomberg BNA as part of their Budget 2017 special report
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