Budget 2016

The Chancellor’s latest Budget Statement appears on the whole to be positive for SMEs but caution should be applied to certain elements.

George Osborne set out from the start of his Budget statement to show that he is on the side of the small business owner by quickly announcing changes to the Business Rates Threshold. 

From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. This relief is currently only available to businesses that occupying a property with a rateable value of £6,000 or less. 

However, the new threshold will mean that a tapered rate of relief will be available for properties with a rateable value of £15,000, meaning 600,000 businesses will pay no rates at all. 

On the back of this, Mr Osborne also announced that from April 2016, the higher rate of Capital Gains Tax (CGT) will be cut from 28 per cent to 20 per cent and the basic rate from 18 per cent to 10 per cent.  These moves will be particularly beneficial to those wishing to sell their business.

Entrepreneurs’ relief will also be extended to long term investors in unlisted companies, providing them with a 10 per cent rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gain. This will be extremely beneficial for businesses seeking outside investment and also helpful to those wishing to sell their business.

The Chancellor also announced that corporation tax will be cut to 17 per cent by 2020, which represent a helpful saving for companies.  He also announced changes that will reduce commercial Stamp Duty Land Tax for the majority of SMEs buying new property and proposed a new micro entity tax exemption, which in particular will help online hobby traders and small traders who may not have previously declared their income.

For small businesses and their owners this is a relatively well rounded and positive Budget, but there are a few things that they need to consider that have not been so openly publicised by the Chancellor.

One of the groups likely to be most upset by the Budget is buy-to-let investors, who have already been battered by the Chancellor’s previous statements.

While the majority of businesses would benefit from the cuts to CGT, buy-to-let investors will still pay the current rates of 28 per cent and 18 per cent.  

Businesses needed to be cautious about how they lent money to their owners, as the loans to participators tax rate will be increased from 25 per cent to 32.5 per cent in April 2016, affecting loans, advances and arrangements made on or after 6 April 2016. 

This follows on from changes to tax on dividends announced in the Autumn Statement, which have increased tax liabilities for company owners when they share in the profits, with effect from April 2016.

While there are a number of big ticket items that will excite SMEs there are things in the Budget that need to be treated with care. 

The government’s approach appears to be quite stealthy and businesses need to be aware of the changes made outside of the main headlines.  In the majority of cases it might be best to seek professional advice.

If you would like advice on any of the subjects raised in the Budget Statement, please do not hesitate to contact the office. 

For more detailed information on this years budget please click here