There were few rays of sunshine in an otherwise gloomy Budget for small businesses, with owners feeling that they shoulder many burdens already.
Many small business owners and aspiring entrepreneurs will have found listening to Chancellor Philip Hammond’s Spring Budget yesterday a rather uncomfortable experience.
A silver lining on an otherwise grey cloud of a small business budget was Mr Hammond’s effort to mitigate the impact of business rate increases. Fears that this property tax would push many out of trading appear to have been heeded, at least in part.
Now, companies losing their business rate relief will receive an extra cap, which means that their rates will not increase by more than
£50 a month; pubs will receive a £1,000 discount, provided that they have a rateable value of less than £100,000; and a £300m fund for councils will allow them to provide discretionary relief to businesses that are struggling.
But other announcements by the Chancellor have caused the small business and start-up community concern.
Millions of self-employed people, many of whom will be starting or running their own enterprises, are to be hit by an increase in their National Insurance Contributions. This rise is intended to bring the taxation paid by the self-employed closer to that paid by employers.
As a self-employed person, you simply can’t be ill
Anna Addison, Anna Addison Associates
Anna Addison, a sole trader and founder of PR and copywriting business, Anna Addison Associates, believes that this step is another burden on top of uncertainty post-Brexit. “I think it’s a real smack in the face for the self-employed, especially after the assurances that the Conservatives proffered in 2015,” she told Small Business Connect.
Ms Addison echoed the comments made by many self-employed business people – that lower taxation levels are justified by the risks they shoulder, and the fact that they’re not entitled to holiday or sick pay. “As a self-employed person, you simply can’t be ill, no matter how sick you actually are.”
She also noted that as a self-employed person, she has to make ‘payments on account’ – tax payments calculated based on previous year’s earnings. “In effect, we pay our taxes in advance a lot of the time,” she added. “I’m only grateful that I’ve been around long enough to have a strong client list and a reputation. God help anyone starting out.”
Company owners who pay themselves via a dividend rather than through a salary will see their tax-free allowance (only introduced in April last year) more than halved from £5,000 to £2,000.
The decision to delay the Making Tax Digital initiative for some small businesses is welcome
Ed Molyneux, FreeAgent
Neil Westwood, an entrepreneur and founder of Magic Whiteboard, was shocked by this decision, particularly as it followed anincrease in dividend tax from 25pc to 32.5pc (for higher rate earners), which was introduced by previous Chancellor George Osborne in 2015.
“It’s another tax increase for small business owners [owner directors],” he said.
Mr Westwood feels that these changes fail to acknowledge the importance of small business owners to the economy, and the personal sacrifices that they make. “We take a lot of risks and employ people. This will make me less likely to employ more people because I’m now being taxed more.”
He added: “It feels like you’re being penalised for taking the initiative and the risk of setting up your own business.”
The digitisation of tax returns and requirements for quarterly reporting have caused alarm among some small enterprises. The one-year delay of these changes is a relief to many, including Ed Molyneux, chief executive and co-founder of FreeAgent, an online accounting company that works with lots of small businesses.
“The decision to delay the Making Tax Digital intiative for a year for all businesses with turnover below the VAT threshold is welcome,”
he said. “It's the biggest change to UK tax in a generation, affecting millions of business owners, many of whom have been calling out for more details about who will have to comply with the legislation.”
But Mr Molyneux felt that this is a small boon in an otherwise disappointing budget for smaller companies. “There’s little else in the Budget for the micro-business sector to be positive about,” he said.