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Budget Breakdown for Business Owners in Britain

Last month’s budget has been slated by the Guardian as hitting small businesses and the self-employed, describing these groups as the “biggest losers” in Chancellor Philip Hammond’s first budget.  Hammond announced large increases to national insurance contributions (NICs) paid by the self-employed and small business owners with higher taxes on dividends, not the most promising news for SME owners and sole traders here in the UK.  There will be an increase in next year’s Class 4 NICs for the self employed from the current 9% to 10%, followed by a further percentage point the following year.  This, coupled with reductions in the tax allowance on dividends for company share holders from £5,000 to £2,000 is likely to have a negative impact on many business owners.

The Chancellor also claimed that he’d considered reversing his predecessor’s decision to abolish Class 2 NICs but decided not to do so, however, he did reveal that he wants to discourage people from forming companies just to reduce tax payments, saying that the current rules are unfair.  According to the Treasury Department, only those who earn in excess of £16,250 a year will pay more NICs, but the changes have still drawn criticism from business lobbies and entrepreneurs. 

The chief executive of the freelance association, IPSE, declared that the self-employed were the biggest losers in the Chancellor’s budget, warning that the chancellor should not forget that the increase in self-employment has driven the UK labour markets in recent years and that these steep rises in tax will cause many would-be entrepreneurs to think twice before opening their own businesses in future.  Given the fact that the UK is a nation of SMEs, the self-employed and small business owners form the backbone of the British economy.

Another factor that impact directly on small businesses was the recent revaluation of business rates, resulting in a sharp increase in some parts of the country.  Hammond announced three main measures aimed at diminishing the impact of the rate change:

  • Any business exiting the small business rate relief will receive an extra cap which means their rates will not increase by more than £50 per month.
  • Pubs will receive a £1,000 discount on their rates as long as they have a rateable value of less than £100,000 (according to the Treasury Department, this means roughly 90% of all pubs in the UK).
  • The Chancellor announced a £300 million fund for local authorities that will enable them to provide discretionary relief to businesses that are struggling.

These new changes will come into force in April of 2018 when the new tax year begins.  The self-employed will continue to see an increase in their tax allowance while personal allowances will rise by £500 to £11,500.  The national living wage rises to £7.50 per hour from April and Corporation tax will be reduced to 19% in 2019, with a further reduction to 17% by 2020.  At the same time, the threshold at which VAT should be paid rises in April from £83,000 to £85,000.