After much speculation, the Autumn Budget was announced on 29th October.
On the surface the Budget is good for business owners, but that comes with a few important caveats. While in the short-term many of the decisions bode well for small businesses, it is difficult to make out the government’s long-term objectives, if they have been decided.
What businesses really need is security and assurance over the coming years. They need a government that helps maintain a level playing field, so they can grow in the UK and abroad. It’s about clarity: give companies a clear view of the next five years and they will plan accordingly. It’s the cornerstone UK businesses need to build on.
In the meantime, it is important to understand the Budget as it stands today and how it will impact business owners and their decision-making over the coming year.
From April 2019 the personal allowance, or amount of income that an individual does not have to pay tax on, will increase from £11,850 to £12,500. The higher rate threshold will rise from £46,530 to £50,000. This change effectively gives a pay rise to both employees and business owners.
While this is undoubtedly a positive move, it does not seem to follow a logical decision-making structure. As this change was set to take effect in 2020 rather than 2019, business owners were likely planning for this time frame and will need to pivot to take advantage of the new windfall.
Another surprise was the lack of change to the pension relief. After talk of a reduction in the annual allowance for pension contributions to as low as £30,000 annually, it will remain at the current £40,000.
“As this change was set to take effect in 2020, business owners will need to pivot to take advantage of the new windfall”
This is a another positive step. With an ageing society and ever-increasing life expectancy, it is important to encourage the population to own and contribute to their personal pensions in whatever ways they can. It remains to be seen if the reduction that was speculated for this Budget will take root in future years.
I certainly hope not, as restricting the amount you can put into a pension after urging the general population to start their own for security in retirement, will send a contradictory message.
R&D and investment
The Annual Investment Allowance has fluctuated significantly over the past five years. This allowance enables business to deduct the full value of a qualifying item, known as ‘plant and machinery’, from profits before tax.
At Budget 2014 the allowance increased to £500,000, then at Budget 2015 it dropped to 200,000 and remained there for only three years.
As this 2018 Budget skyrockets, the allowance will rise to £1 million for purchases after 1st January 2019. While these deep pockets will no doubt stimulate businesses investment, it is again difficult to identify a long-term government initiative that would allow businesses to plan for continued growth.
In the short-term this is an opportunity for businesses to delay purchases until the new year in order to benefit from this valuable relief, and plan for future large ticket item purchases to take advantage of the current high cap.
R&D tax relief restrictions are changing to be based on the level of PAYE/NIC liability of the claimant; this is just a tweak and will not impact a large majority. The only ones likely to be affected are companies with a very high proportion of sub-contractor and material costs in their claim.
The cap will be three times the company’s total PAYE and NICs liability for that year. While this is not necessarily a notable change, it is set to be a good year for businesses investment when paired with the Annual Investment Allowance increase.
One of the largest challenges facing businesses of any size is finding and retaining people with the right skillsets.
The Budget announced that some employer contributions for apprenticeships will be halved from 10 per cent to 5 per cent for some companies. While this may be a small monetary difference, the government is sending the right message: apprenticeships are the way forward.
They may not be a quick fix but those that take advantage of this programme and are willing to train and grow their own future workforce will benefit. Initiatives such as these will help to ensure the UK remains competitive and builds skills for the future.
“The government is sending the right message: apprenticeships are the way forward”
All in all I come away from the Budget with high hopes for the year ahead. If businesses begin planning now, they will be primed to take advantage of the benefits before them.
At the same time there are mild frustrations in the erratic and piecemeal feel of the decisions feeding into this year’s Budget. Rather than continuing to kick the political football around, the government needs to provide businesses with a clear plan that they can build their long-term strategy against.
David Fort is the managing director of Haines Watts Manchester.