Budget Backs Business
by Madeline Ojakovoh
Last week, the Chancellor’s budget resulted in political upheaval. Despite the fallout, there is much for entrepreneurs to be optimistic about as Osborne delivers a budget with a generally sunny outlook for the country’s businesses.
In case you missed it, last Wednesday saw the Chancellor unleash his latest budget on the people of Britain. While the majority of its content was far from incendiary, the response was certainly explosive.
On Friday, Work and Pensions Secretary and Tory stalwart, Iain Duncan Smith, resigned from his post in the cabinet office, a position which he has held continuously for the past six years. Unsurprisingly, this unleashed utter mayhem amongst a Conservative party, already in mild to major disarray over the looming EU referendum taking place this summer.
This highly public, and some would say, personal, resignation added fuel to an already smoking fire. While Corbyn and his shadow ministers looked on, rubbing their hands together with glee at the prospect of turmoil and infighting amongst their closest rivals, Prime Minister David Cameron scrambled to fill the large hole left by the ex-minister and retain control of his party. With a difficult month ahead struggling to maintain party unity and fight the corner of the EU supporters, bumbling Boris is beginning to look like the least of our PM’s problems.
Now that the dust has had time to settle, let’s assess how the summer budget will impact the country’s entrepreneurial community over the next few years.
The headlines are fairly positive.
The general consensus in the business world is that the Chancellor has, overall, satisfied expectations. A number of the major policy changes in the budget are designed to provide much needed support to existing UK businesses and to promote the growth of new ones.
Let’s start by the assessing the main policy changes:
- Corporation Tax is due to be slashed again.
In 2010, the Coalition Government of the time cut the rate of Corporation Tax from 28% to 20%, making the UK the proud bearer of the lowest Corporation Tax rate of any G20 economy. The announcement of a further fall to 17% by 2020, brings added relief and is forecast to benefit 1 million British businesses.
What does this mean for entrepreneurs?
As Corporation Tax is based on the profits your business makes, new entrepreneurs are most likely to fall into the lowest band of Corporation Tax, dealing with business profits under £300,000 per annum. If these new changes are implemented effectively, you will likely keep 3% more of your profits by 2020. This also positions the UK as one of the best countries to base your business in, which is exciting news for British entrepreneurs.
- Capital Gains Tax will fall for all taxpayers.
Higher rate taxpayers will see their levies fall from 28% to 20%, while those on the basic rate will see a similar drop from 18% to 10%. And the good news is that these changes will take an almost immediate effect, from 6th April 2016.
What does this mean for entrepreneurs?
If you are selling anything that has increased in value from the original purchase price while under your ownership, the Government will now take 8% less out of the profits of your sale. Again, this measure puts more money into the pockets of businesses, and is a welcome relief for cash-strapped entrepreneurs.
- New Stamp Duty rates for commercial property are already in place.
More good news. Changes to stamp duty calculations mean that businesses pay less stamp duty, only paying the higher rates for the portion of their purchases which fall into the higher tax bands. The first £150,000 of commercial property purchases is taxed at 0%, while a 2% levy is charged on the next £100,000, increasing to 5% for any remaining value above £250,000.
What does this mean for entrepreneurs?
For entrepreneurs wanting to move their businesses from their homes, shared working spaces, or incubators, this announcement may provide the final nudge necessary. Businesses will now have to stump up less cash to purchase the perfect office space and fully establish themselves in their chosen surroundings.
Entrepreneurs are high on the Chancellor’s priority list.
With Osborne’s pledges to “back businesses” and “[put] rocket boosters on the backs of enterprise”, it is unsurprising that this budget introduces a variety of measures designed specifically to support Britain’s entrepreneurs.
The Chancellor’s budget supports entrepreneurs in finding investment. Entrepreneurs’ Relief is being extended to long term investors in unlisted companies. This, in essence, means that investors in companies with newly issue shares get a 10% rate of Capital Gains Tax on these, provided the shares are to be held for a minimum of three years from 6th April 2016, and were purchased on or after 17th March 2016.
The budget provides further good news on the investment front. Companies attempting to raise funds through Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) will now have extra flexibility as restraints are lifted. New businesses will now be able to raise more than £150,000 in a single go and no longer have the constraint of having to spend 70% of the SEIS money before going out to raise EIS, in a justifiable simplification of the process.
A surprising outcome was the support for micro-entrepreneurship. The Chancellor announced a tax free allowance of £1000 for small-scale enterprise projects, such as renting out spaces, offering services, or even for those with small sales businesses on sites, such as eBay and Etsy. It is becoming increasingly evident that enterprise on any level is being widely encouraged by the incumbent Government.
It’s good news for the Tech-focused founder.
The Chancellor is practically salivating over the prospect of discovering the next Google, Amazon or Facebook, as this budget introduced a range of measures to improve the UK’s technology infrastructure and support tech businesses.
In the summer budget, the Government renewed its commitment to creating a strong pool of tech talent in the UK, to help the country compete with the Silicon Valley giants in the US which are rapidly gathering steam. Mr Osborne gave the go ahead for a range of projects designed to improve the country’s capacity to deal with big data. He allocated £10m to building a new data science hub in Newport for the Office of National Statistics to develop their algorithms and data pools, £15m to building a National Institute for Smart Data Innovation in Newcastle, and £5m to developing an open address database.
Additionally, the Chancellor announced plans to roll out a fast 5G network by 2022. The Government will make 750MHz of spectrum available in bands under 10GHz, with 500MHz of this available by 2020. This will keep the UK ahead of the curve in terms of its technology and enable people to achieve more, when they are on the go. It’s tough luck if you are not tech-savvy, I’m afraid, as the trend towards a tech-based society seems inevitable.
Make way for the entrepreneur hubs of the North.
It seems we will never hear the end of this ‘Northern Powerhouse’ narrative. In an attempt to make himself and the Tories seem more amenable to the northern voters over the past few years, George Osborne has implemented a series of policies specifically focused on bringing benefits to this part of the country. The Chancellor continued this trend, scattering pro-North policies throughout the latest budget like confetti.
Transport is the main winner, with a whole host of commitments being announced in this area. Most notable, perhaps, are the plans to build a £60m HS3, a new high speed railway between Manchester and Leeds, which will reduce journey times from 50 minutes to just under 30 minutes. Mr Osborne also allocated £161m to improving the M62 between these two northern cities, to encourage the growth of businesses across the north.
Local Enterprise Partnerships were also given £12bn to spend on projects outside of London and new Enterprise Zones were announced in Loughborough and Leicester.
This heavy focus on the north of the country will make it much easier for entrepreneurs in this part of the UK to establish themselves. It will also promote the growth of businesses and populations to the north, as there will be less necessity for entrepreneurs to move to London to give their businesses the greatest chance of success.
The National Living Wage may create problems for cash-strapped start-ups.
From 1st April 2016, all UK businesses will have to pay employees over the age of 25 a National Living Wage, initially set at £7.20 an hour, increasing wages for a full-time worker by £900 per year. This, in addition to the compulsory requirement for employers to provide staff pensions, set to take effect from April 2017, means that small businesses will face increased spending on payrolls.
Any founder of an early stage business will appreciate the difficulty in finding salaries for their employees every month. Often, they will work to extremely tight budgets or even sacrifice their own salaries entirely, in pursuit of building their businesses. The combination of the aforementioned two policies will therefore create huge problems for many start-ups and SMEs.
The Chancellor has implemented many measures in this budget to aid businesses, but this could arguably all be undone with these two policies. On the face of it, these policy changes seem fairly innocuous – who wouldn’t agree with putting more money in the pockets of hard-working employees both now and in the future? But for smaller businesses, which are often begging, borrowing and bootstrapping to get by, these changes might be too big a burden to bear.
Osborne’s budget inspires optimism.
On the whole, the outlook from the budget is largely positive. With a few notable exceptions, such as the National Living Wage, the budget has introduced policies aimed at supporting entrepreneurs. British business is booming, and entrepreneurship is on the up. Thankfully, the Government’s support for UK enterprise does not look likely to end anytime soon.