Welcome to our small business 2016 Budget review
On 16 March, the Chancellor delivered his first Budget of 2016.
In the lead up to the 2016 Budget there were a number of potential measures which many small business owners may have been hoping for, including an accelerated reduction in corporation tax rates, another freeze on fuel duty, a check on Entrepreneurs’ Relief and a simplified tax system. Other changes that may have been on small business owners’ Budget 2016 wish list were a revision to the planned dividend tax increases and a reform of business rates.
In this small business 2016 Budget review we summarise the key points and developments arising from the 2016 Budget and focus specifically on what the changes may mean for the small business sector.
Budget summary (small business specific):
- Increases in business rate relief for small businesses
- Corporation Tax will be cut to 17% by 2020
- New stamp duty rates for commercial property from 17 March 2016
- Fuel duty to be frozen again
- Increased investments in road and rail
- Capital Gains Tax rates will be cut from 6 April 2016
- HS3 between Leeds and Manchester to go ahead
- Personal Allowance to increase to £11,500 in April 2017
- Higher-rate threshold will increase to £45,000 in April 2017
Small business 2016 Budget impact
A good 2016 Budget for small businesses
Scott Sanderson, Partner at Hawsons, commented: “The Chancellor claimed that it was ‘a Budget that backs small businesses’ and, with small business rate relief more than doubling, a check on fuel duty and changes to commercial stamp duty rates, the 2016 Budget did bring some real positives for small businesses. Overall, the 2016 Budget was a good Budget for small businesses.”
“Small businesses are at the heart of the UK economy and this was a Budget that backs enterprise and backs small businesses in the UK. Of course, any changes that signal a simplification of the tax system is a welcomed announcement for small business owners, but there were also supportive measures to help small businesses that are struggling financially. The Chancellor has acknowledged the calls from small businesses to expand the business rate relief available to them and this is the single biggest tax cut in the 2016 Budget for the small business sector.”
Business rate relief for small businesses
The Chancellor announced a progressive approach to business rates, with the business rate relief for small businesses more than doubling from £6,000 to £15,000. This increase to the annual limit will exempt thousands of small businesses, with 250,000 businesses paying less in business rates.
Sage data shows that, prior to the 2016 Budget, more than one in three UK small businesses said that reforming business rates would have the biggest impact in transforming their business. This is a big boost for small businesses and particularly for retailers, who argue that, in the digital age, those who have bigger physical presences (than those with big online presences) are taxed unfairly and uncompetitively.
Freezing of fuel duty
The fuel duty freeze will be extended for another year, taking it to 6 years at the current rate at the end of 2016/17. This is good news for both drivers and small business owners and will be welcomed across the country. The freezing of fuel duty will particularly those who use vans or who take delivery of goods (e.g. retailers and hospitality firms) where using large amounts of fuels is unavoidable. As an example, the Chancellor announced that this would see a saving of an average of £270 for small business with a van.
Commercial stamp duty
Following last year’s reform of residential stamp duty, the Chancellor announced that commercial stamp duty will be reduced for small businesses with a zero threshold for commercial properties with a value of up to £150,000 and 2% on the next £150,000.
This new tax regime on commercial stamp duty comes into force on 17 March 2016.
Scott added: “Small businesses will benefit from the reforms to stamp duty on commercial premises, with the Chancellor claiming that almost 90% of businesses will see a reduction in taxes. The Chancellor gave the example of a pub which will see stamp duty falling from £8,000 to £3,000 which highlights the potential significant reductions in tax for small businesses.”
Corporation tax rates were once again cut by the Chancellor in the 2016 Budget, which will of course bring tax opportunities for small businesses and their owners. The tax rate currently stands at 20% and was proposed to fall to 18% by 2020 (announced in the 2015 Budget), but will now fall to 17%.
The below table shows have corporation tax rates have been on a downward trend in recent years.
A reduction in corporation tax rates will likely have a knock-on effect on business confidence.
One of the big hopes for many entrepreneurs on their small business 2016 Budget wish list would have been a revision to the planned dividend tax increase that is due to come into force from 6 April 2016. The planned dividend changes will put even greater financial pressure on small business owners, with many coining the new rules a tax on success.
Scott added: “There was a glaring exemption for small businesses in the Chancellor’s Budget – dividends. There we no announcements on the forthcoming dividends changes, which will see the proposals go ahead as planned.”
For more information
Over the coming weeks we will have ongoing analysis of the impact the 2016 Budget will have on the small business sector. To keep up-to-date with that news, as well as all other developments in the sector, please sign-up for our specialist small business newsletter.