One Month On: How is the 2017 Autumn Budget Affecting Brighton Businesses

The seaside city of Brighton is an established hub for entrepreneurs, constantly topping lists of the best cities in the UK to launch start-ups.

Thanks to its proximity to the capital, the 46% startup survival rate across the city, and having the most number of young businesses per capita outside London; Brighton unsurprisingly quickly gained the title “Silicon Beach.”

While starting a business in Brighton should be a great investment. The economic instability that followed the Brexit vote shrouded the future of the country’s micro and small businesses in uncertainty.

One Month On: How is the 2017 Autumn Budget Affecting Brighton Businesses

Millions of business owners awaited the unfolding of the Autumn Budget last November, as this could throw a lifeline to UK SMEs. But after the failure of the previous March budget to address the needs of Brighton’s micro and small businesses, how does the Autumn Budget stand up?

1. VAT threshold stays the same

The Office of Tax Simplification’s early November report caused a stir among small business circles. Should the government accept its recommendations, lowering the current VAT threshold of £85,000 (one of the highest in the world), one million small businesses in the UK would be mandated to submit to MTD requirements.

The potentially problematic effects will be two-pronged: small business owners will need to shell out huge investments for HMRC-compatible software, while the HMRC would be inundated with one million applications that would take them a year to process. There is also the issue of proper implementation.

However, the Chancellor opted instead to freeze the VAT threshold for two years from April 2018.

2. MTD is unchanged

There are no plans to amend the nationwide rollout of Making Tax Digital. Overhauling the tax system will not be mandatory for small businesses until April 2019, and even then, it will only affect those with a threshold above £10,000 but below £85,000.

3. More funding for UK SMEs

Lack of funding is a constant hindrance to small business growth. Since the economy needs SMEs to be as competitive as possible, the UK government addressed this concern by: 

  • Investing £2.3 billion in R&D
  • Seeding the British Business Bank with £2.5 billion, thereby freeing up £13 billion to fund UK SMEs
  • Expanding the Enterprise Investment Scheme, the Seed EIS, and Venture Capital Trusts to make investments easy for scalable tech businesses (i.e. an individual can invest up to £2 million provided that it’s for knowledge-intensive companies; annual investment for knowledge-intensive companies will be doubled to £10 million)

4. Upskilling the workforce 

Given that nearly two million small businesses in the UK lack fundamental digital skills, the government introduced a national retraining scheme to upskill the workforce.

£30 million will be invested in teaching digital skills and long-distance learning to ensure that the future workforce will have the proper skill set to match today’s opportunities.

5. Increase in personal taxation

Confirming initial speculations, the Chancellor announced an increase in personal allowances for both income tax and higher rate taxpayers.

Starting April 2018, the tax-free personal allowance will increase to £11,850, while the threshold for higher rate taxpayers will increase to £46,350.

This increase in Income Tax personal allowance will benefit low earners and those who are at the early stages of business growth.

6. Business tax changes

Business rate hikes are also a chief concern among small firms. On top of freezing the VAT threshold, the government also brought the following into the budget:

  • Switching business rates to Consumer Price Index rather than the historically higher Retail Price Index, potentially saving businesses £2.3 billion.
  • After next year’s rate revaluations, succeeding revaluations will now be taken every three years instead of the current five.
  • R&D tax credit rate will see an increase of 12%.
  • The staircase tax—wherein companies operating on multiple floors within the same building is taxed separately for each floor—is abolished.
  • Pubs with a rateable value of less than £100,000 will still receive £1,000 discount.

7. Vehicle tax increase

The additional tax on diesel vehicles could spell problems for tradesmen, but there are a few changes that would prove to be beneficial:

  • By April 2018, any new diesel vehicles that would not meet the latest “clean diesel” standards will go up by one band. Van owners are, however, exempt from this.
  • Fuel duty rise that was originally scheduled on April 2018 remains frozen for the eighth consecutive year.
  • Diesel car supplement will increase from 3% to 4% starting April 2018, affecting company car tax and car fuel benefit charge. This applies to all diesel cars that do not meet Real Driving Emissions (Step 2) standards.

8. Wage increase 

Even small businesses would need to absorb the increase in the National Living Wage (NLW). From the previous £7.50 per hour, NLW increased by 4.4% to £7.83 per hour starting in April 2018.

Increases in the National Minimum Wage, on the other hand, are as follows:

  • Apprentices -- £3.70 from £3.50 per hour
  • 16 to 17-year-olds -- £4.20 from £4.05 per hour
  • 18 to 20-year-olds -- £5.90 from £5.60 per hour
  • 21 to 24-year-olds -- £7.38 from £7.05 per hour

While the youth minimum wage increase is on the whole, good news, concerns have been raised over the long-term effects for employers given the recently downgraded growth forecasts.

In fact, official projections from the Office For Budget Responsibility states that the NLW will only reach £8.56 by 2020—lower than the heavily-publicised £9 per hour that was initially targeted.

9. More infrastructure investment 

The Autumn Budget placed emphasis on the digital, identifying key opportunities to maintain the UK’s position as one of the leading countries in the tech revolution.

To support the infrastructure movement the Chancellor announced investments for 5G, broadband, and new transports for city regions, including:

  • £500 million for 5G and fibre broadband
  • £540 million for developing electric cars and home charging ports
  • £1.7 billion for the Transforming Cities fund aimed at improving transports in city regions

10. Introduced new anti-avoidance rules 

According to the budget report, there are employers who continue to abuse the NIC Employment Allowance, as often seen in cases of offshore arrangements.

This prompted the government to include anti-avoidance rules in the Autumn Budget, with the HMRC requiring upfront security from employers who will use the allowance starting 2018. This is to ensure that offshore payments to a UK resident will not evade taxations when they are made through a remittance basis user or overseas beneficiary.

Business As Usual

After small firms and self-employed individuals were alienated during his March budget, Chancellor Hammond included plenty of developments for small to medium businesses in his Autumn Budget.

The jury is still out, however. Some experts say these developments are vital in light of UK’s lukewarm economy projections, while others say these are unfair especially for micro-businesses and contractors. 

At the end of the day, you’ll need to adapt and find opportunities to improve your business during these trying times. We, at Plummer Parsons, are more than glad to assist you, as you build your business by providing our accounting expertise for your short and long-term strategies.