With the extension of business rates relief, the cutting of capital gains and corporation tax rates and a reformation of how stamp duty is charged for commercial property, George Osbourne has extended a robust olive branch to a disgruntled small business community.
Winning favour with this vital sector of the electorate is essential to Tory strategy right now, with the EU Referendum and a potential leadership battle looming ahead.
The stakes are high, and Osbourne isn’t taking any chances. Here’s how he has pacified and pleased UK SMEs:
A burning issue for small businesses over the past few years, the drive for business rates reform gained considerable momentum in 2015.
Frustration with an outdated system, that calculates business rates on property rental value rather than commercial turnover, has grown for owners of bricks and mortar businesses who have seen online retailers and supermarkets benefit at their expense.
Under mounting pressure from the business community, Osbourne introduced Business Rate Relief in 2014 to the smallest enterprises and then, in last year’s Autumn Statement, announced an extension of the relief until April 2017.
The chancellor’s budget announcement has built on these measures by making small business rates relief permanent and creating a ‘roadmap’ to ensure ‘a level playing field for businesses.’
Osbourne declared a new £15,000 threshold for small business rate relief which is over double the current level of £6000, as well as increasing the higher rate from £18,000 to £51,000.
The Treasury claims this could save businesses up to £6000 a year, with 250,000 companies paying less in business rates and half of all commercial properties paying none at all.
Policy Director at the Federation of Small Businesses, Mike Cherry said:
‘FSB members have campaigned hard to make small business rates relief permanent and expand it – and the chancellor has heeded our calls, taking many small firms out of the system altogether.’
With the recent furore surrounding multinationals not paying corporation tax, including Google, Lloyds Banking Group and drugs company Astra-Zeneca, Osbourne had no option but to address this issue directly.
He announced a series of measures to stop big-business ‘working the system’ and declared that corporation tax would be cut from the current 20% to 17% by 2020.
Businesses making an annual profit of over £5 million will now have the amount of historical losses than can carry forward to offset their corporation tax bill capped at 50% of current profits.
Carolyn Fairbairn, Director General at the Confederation of British Industry (CBI) said:
‘The reduction in the headline corporation tax rate sends out a strong signal that the UK is open for global business investment, and reforms to interest deductibility are rightly in line with the international consensus.’
Capital gains tax
The slashing of the top rate of capital gains tax from 28% to 20% and the basic rate being cut from 18% to 10% for the sale of equity in small businesses is a welcome move.
Although not extended to residential property, these cuts will increase confidence in the business market, encouraging people to scale up their enterprises to sell.
NI Contributions, tax allowances, duties and tolls
Perhaps in a bid to soften the upcoming strain on employer cash-flow in the National Living Wage, Osbourne announced that class 2 National Insurance contributions for the self-employed will be abolished from April 2018.
The threshold for paying income tax has also been raised to £11,500 by 2017, and the level at which a higher rate of tax is paid has been increased from £43,000 to £45,000.
Other pacifiers included freezes on fuel and alcohol duty and the halving of tolls on the Severn river crossing with a promise to review proposals to abolish them altogether.
Stamp duty has been reformed for commercial property in a similar way to the 2014 overhaul of the residential system.
The ‘slab system’ has been thrown out in favour of gradual thresholds, whereby property buyers will only pay a higher rate on the level of the purchase that exceeds the limit.
From now on buyers will pay no commercial stamp duty on the portion of the transaction value up to £150,000, 2% on £150,000-£250,000 and a top rate of 5% after that.
The Treasury claim that nearly all small businesses will pay the same or less in stamp duty as a result.
Fuel for the Northern Powerhouse
Osbourne’s favourite project – the Northern Powerhouse – was also given a boost with the announcement of more spending for rail and roads and a green light for the High Speed 3 (HS3) rail-link between Leeds and Manchester.
The chancellor also put aside £161 million to turn the M62 into a four-lane highway and a further £75 million for improving other roads in the North. He also pledged an extra £700 million for flood defences.
George Osbourne has offered a reassuring hand to the UK’s small business community in what will continue to be an uncertain political and economic climate. Time will tell whether his offering will pay dividends.