The last Spring Budget
As specialist M & A advisers we wouldn’t normally pronounce directly on a Budget, but in this case there is some merit in a broad overview. Taking the economy first, key points from the Chancellor’s opening statement included:
• The government’s pledge has been to make the UK the “best place in the world to start and grow a business” and to “back British business”.
• The Chancellor said that the resilience of the UK economy had continued to defy expectations, with the country enjoying robust growth. Indeed, he noted that last year Britain’s growth was behind only Germany’s among the world’s biggest economies.
• Confirmation that the Office for Budget Responsibility (OBR) had raised its growth forecasts for the year, with projected growth of 2%, rather than the previous estimate of 1.4%.
• OBR figures also suggest that inflation will peak at 2.4% this year, with expectations that it will drop as we approach the end of the decade.
• Acknowledgement that levels of debt were too high, and that productivity needed to improve.
In what may arguably be seen as a low key first Budget (and the last time a major fiscal statement will be made in the spring) the Chancellor will have disappointed many entrepreneurs and business owners, with virtually a complete absence of any major tax changes for business, particularly for SMEs.
Key specific points for businesses from the Budget can be summarised as follows:
• The biggest point of contention was the increase in NI for the self employed, apparently part of a trend towards narrowing the tax gap between employed and self-employed. There is an intended 1% increase in Class 4 NIC in 2018, and again in 2019, together with a reduction in dividend tax free allowance from £5,000 to £2,000 from 2018.
Strong polarity of opinion on this measure, some will see it as fair and helping maintain the country’s overall tax take for the greater good, those directly affected of course will be implacably against it. It will increase the tax burden on entrepreneurs and the self-employed, despite the sweetener of the intended abolition of Class 2 NIC in 2018.
• Almost equal in controversy is the planned increases in Business Rates, not strictly speaking a pure budget issue, as the timing is coincidental, but more help was expected in the budget to alleviate the worst effects of the increase, particularly for smaller businesses who will be disproportionately hit, and especially in London and the South East.
• There are well over 4 million self-employed people in the UK, and many of them will shortly also need to consider the impact of mandatory electronic filing, with the proposed introduction of making tax digital (MTD).
• There were no new incentives to encourage investment or increase capital value, but the Chancellor may have felt that existing measures such as low corporation tax rates are sufficient to encourage businesses, so that little tinkering was the best option. Stability in the tax system is certainly always desirable.
• However, on the plus side, despite much expectation to the contrary, there was no increase in the current rate of CGT relief through Entrepreneurs’ Relief.
• It would though seem increasingly that business owners are having to make tax their primary concern when deciding how to structure their business, over other more commercial considerations.
Some of course may see an absence of serious changes as a good thing with no worsening of the existing situation, but many will have been hoping for more tangible incentives for businesses. However, there is an expectation of greater support for growth and entrepreneurship in the autumn Budget.
10 March 2017