Autumn Budget 2017 – a balanced approach for small businesses?

Although there was not a vast amount of tax in the Chancellor’s speech the detail has revealed a flurry of tax measures aimed at small businesses and SMEs. As the government seeks to take a “balanced approach” we are encouraged by some of the announcements made, in particular that the VAT registration threshold will not be reduced and will remain at £85,000 for the next two years. The government will consider how to address distortions and barriers to growth caused by the threshold.  

 

Some of the key announcements relating to businesses include:

 

Corporation tax

The government reconfirmed its commitment to a corporation tax rate of 17% by 2020 and announced a freeze in indexation allowance after January 2018 to bring the calculation of corporate gains in line with the personal tax regime.

 

Making Tax Digital

There were no new announcements in relation to Making Tax Digital (MTD) and the red book confirms that the current timetable remains in place:

 

  • VAT registered businesses with turnover above the VAT registration threshold (£85,000 until 31 March 2020) will be required to comply with MTD for VAT from April 2019.
  • MTD for other taxes will not be introduced until April 2020 at the earliest and only once the system has shown to work well.

 

An updated statement of impacts is expected to be published on 1 December 2017. For more information about MTD visit our hub: www.icaew.com/mtd

 

IR35 – possible extension to the private sector

Since April 2017 public sector bodies have been required to determine whether the IR35 rules apply to public sector engagements. Following much speculation the government has confirmed that it will consult on the possibility of extending the rules to the private sector. This would mean that the individual providing services via their personal service company would no longer be responsible for determining their tax status; it would now rest with the end user.

 

We are pleased to hear that further work will be undertaken in the employed versus self-employed arena, and that following the Matthew Taylor review of modern working practices there will be a discussion paper on how to reform the employment status tests.

 

Business rates

With business rates firmly in the spotlight in recent months many small businesses will have breathed a sigh of relief to hear that from 1 April 2018 indexation on property valuations will be based on CPI rather than RPI. The Chancellor also promised an additional support package of £435m to help those businesses most affected by revaluations. In addition, more frequent valuations will take place – every three years rather than five. Support for pubs, first announced in the Spring Budget 2017, will continue where there is a rateable value of up to £100,000.

 

Increasing the incentive to invest

With effect from 1 January 2018 the rate of research and development expenditure credit will increase by 1% to 12%, costing the Exchequer an additional £2.3bn. This is good news for large businesses with investment plans and is no doubt a bid to increase spending and boost business confidence in uncertain pre-Brexit times. Certain SMEs are also eligible for the relief.

 

The Enterprise Investment Scheme limits for knowledge-intensive companies will double from £1m to £2m which will help to support innovative businesses. There will be some anti-avoidance measures to combat investment in less risky companies where there is an interest in capital preservation.

 

VAT reverse charge in the construction sector

In a bid to reduce VAT fraud in the construction sector the government will implement a VAT reverse charge system from 1 October 2019. The original consultation document considered whether any legislative changes were required to the direct tax construction industry scheme, but following representations received, it has been decided that no changes will be introduced. Instead HMRC will increase its compliance activity in the construction sector.

 

Disincorporation relief

It has been confirmed that disincorporation relief will not be extended beyond its expiry date of 31 March 2018. Since its inception in 2013 fewer than 100 companies have claimed the relief.

Anonymous
  • Just a minor point of detail. The increase in the rate of R&D relief was for the RDEC regime, which primarily applies to large companies. Yes, certain expenditure of SMEs will come within RDEC but the majority of SME spending on R&D will get relief under the SME regime. Although it is far more generous than the RDEC relief, the rate of relief under the SME regime has not been increased in this Budget.