Following the recent change in Tory leadership, a new ‘mini budget’ was held last week in which the chancellor announced new fiscal measures aiming to restore the UK’s economic standing against the backdrop of rising costs and financial uncertainty.
The budget outlined by Kwasi Kwarteng has been noted as being incredibly pro-business but has also been criticised for benefitting large corporations more than smaller businesses, especially by those in the hospitality and entertainment industry.
Kwarteng referred to the country as ‘the nation of entrepreneurs’ and has introduced several alterations designed to support business in the country by removing taxes on jobs, investment and entrepreneurialism; ones that small business owners will need to get up to speed with quickly.
The tax benefits introduced will be welcomed by those they support, especially as research carried out by The Accountancy Partnership into SME owners’ mental health has revealed that 83% of entrepreneurs worry about their financial situation. The question, however, remains around whether the support goes far enough to support all businesses.
Income tax changes
The changes to income tax will be encouraging for both high and low earners, although higher earners are set to benefit the most from the flat 40% rate.
Something company directors will have to consider is how this impacts their own salary and dividends pay structure. Income tax changes coupled with rolling back National Insurance mid-year will affect self-employed people as they pay tax at the end of the year, rather than throughout. The government may decide to pro-rata the rates or annualise the rate – it is not yet clear, so it is essential small business owners stay aware of further announcements to ensure they are taking their salaries in the most tax-efficient way.
IR35 repealed
Plans to repeal IR35 will likely be welcome news for contractors as it should relieve complications and administrative burden, making businesses more willing to use short-term contractor recruitment models.
This is a step that seeks to level the playing field between sole traders and their counterparts in employment. Depending on how the new reforms take shape, we should see the end of contractors paying more tax than is fair or necessary.
Corporation tax increase reversal
Reversing the corporation tax hike proposed by ex-Chancellor, Rishi Sunak, could encourage businesses to stay in the UK rather than leave as some have due to Brexit changes. This would allow companies to distribute money to other parts of their business.
However, this is not necessarily good news for all small businesses as reversing the corporation tax hike primarily benefits high-profit businesses and increases competition as taxes don’t reflect disparities in earnings.
Reversing the National Insurance increase
This decision reduces the cost of employing people, which is brilliant for small businesses and their owners as it gives them further support as they grow. It removes the previously proposed tax on headcount.
The National Insurance reversal will save almost 1 million businesses £10,000 on average next year, freeing up funds to support staff through benefits or training, reinvest back into the business to support growth or help mitigate the impacts of inflation.
Interest rates increase
Increasing interest rates are an ongoing concern for millions of businesses relying on credit. The business energy price cap is good news, but there are still difficult times ahead as the cost of borrowing money increases.
Improving cash flow and reducing repayment times will help to reduce reliance on loans, as will consolidating loans, restructuring and seeking grants and financial support. With interest rates showing no sign of slowing, these may be the best routes for businesses to take.
Although this mini budget has presented some mega changes now and in the not-too-distant future which could help alleviate the financial pressures of the past few months, we are likely still not out of the woods. Most small business owners likely need to consider revising their business plans in the context of the current climate, and look at ways of remaining agile to cope with the ongoing financial crisis.
