Last month’s Summer Budget saw Chancellor George Osborne unveil the Conservatives’ plans for our finances - and many of the changes announced are sure to affect business owners across Britain. With proposals ranging from a dividends shake-up to all-new enterprise zones for the country’s SMEs, the outcomes of this summertime address seem initially promising.
Today we’re putting SMEs in focus and establishing what level of impact these economic updates will have for the UK’s self-employed population, for better or worse.
Death to the Dividend Tax Credit
Things are changing in a big way for Britain’s self-employed, following Osborne’s announcement that the Dividend Tax Credit will be abolished altogether from April next year and replaced by a new tax-free Dividend Allowance. The new system will see the Britain’s business owners granted a yearly allowance of £5000 - and opinion is split on whether this upcoming policy is a blessing or a curse.
A fixed Dividend Allowance will, in many cases, mean less tax for smaller businesses - but the same unfortunately can’t be said for those paying top-rate tax, who will find that their dividend income tax has increased quite significantly.
A Living Wage
From April 2016, the UK’s minimum wage will increase to £7.20 - and by 2020, that figure should have risen again to a significantly greater £9. This update marks a step towards Britain’s new National Living Wage, which is great news for the nation’s workforce but less appealing to the SMEs employing many of them.
To offset this increased cost, however, Osborne also announced that there will be a 50% rise in the National Insurance employment allowance - which will jump from £2000 to £3000. The outcomes of the Summer Budget aren’t quite as positive for the nation’s contractors, on the other hand, who will no longer be eligible for Employment Allowance if they’re the director and only employee of their Limited company.
Investing in the SME
The Chancellor has set a new Annual Investment Allowance, which exists to help SMEs make tax-deductible investments in plant, machinery and equipment - and the updated figure stands at £200,000. The allowance had initially been planned to drop on the 1st January 2016 from the current £500,000 to a fractional £25,000, so in that sense this is a big win for smaller business owners - but it’s an undeniably disappointing figure for those hoping to see an increase in this crucial funding.
A War on Red Tape
Red tape came under fire in Osborne’s address, as the Chancellor revealed that the Office for Tax Simplification has been granted further powers on a mission to make tax procedures more straightforward and streamlined for all. Next year, the OTS will present its recommendations for tax system reform as a part of the 2016 Finance Bill - while tax reporting continues to be digitised across the board.
All Credit to SMEs
The Summer Budget also revealed that banks will now be required to share all SME credit information with alternative lenders, as the Government makes a concerted effort to make it easier for smaller businesses to secure essential funding. The aim is to take advantage of this information sharing to match SMEs who have previously been rejected for a loan with other finance providers who may be able to help.
Good News for the Northern Powerhouse
Startups and SMEs will find financial relief as a result of the Government’s new ‘enterprise zones’, designed to award businesses in select areas across the UK tax reductions and professional support. SMEs in the ‘Northern Powerhouse’, which encompasses Manchester, Liverpool, Sheffield and Leeds, are set to benefit greatly from these zones - and the scheme as a whole promises to drive significant growth in the sector.
With some small comforts for Britain’s self-employed masses, from online tax reporting to support for SMEs, many UK enterprises are likely to prosper under these new policies - but the question remains as to whether some of the country’s SMEs will be helped or hindered by the 2015 Budget and its more controversial contents.
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