George Osborne’s Comprehensive Spending Review may have been eagerly expected by small businesses, yet in many respects it failed to deliver anything notable to ease the plight of entrepreneurs. There was little recognition and appreciation for the major contribution that small businesses make to the overall UK economy. After scrutinising the Autumn Statement and Spending Review, accountants have been in broad agreement that the overall package delivered little of real significance for the UK small business sector.
So what had small businesses been hoping for? Well, given the huge challenges that small business owners are already facing – challenges like new rules on pensions, tax changes to dividends and the living wage, there had been some optimism that the Chancellor might have taken some action to ameliorate the challenges. After all small businesses are the backbone of the country. However, the best that could probably be said of the Spending Review is that at least the Chancellor didn’t drop any further bombshells and make the situation worse.
So what exactly did the Chancellor say?
Tax Credits U-turn: welcome news for the self-employed
The Chancellor’s decision to abolish plans to cut tax credits was welcomed. Tac Credits contribute significantly to household income for low earners and working families, and are therefore seen as vital. For the self-employed the news will be welcome as they do not benefit from the national minimum wage: had tax credits been abolished it is arguable that many people would have had second thoughts about remaining self-employed.
Increased House Building
The £2 billion a year boost for the house building sector, particularly to build affordable homes, announced by the Chancellor will hopefully help to boost local economies. Many self-employed people in the construction sector – like electricians, plumbers, and builders stand to benefit.
The Chancellor decided not to overturn the earlier decision on tax on dividends announced in the Summer Budget. That change alone could cost basic rate owner-managers almost £2,000 a year.
The Spending Review brought more bad news for landlords. The Chancellor confirmed that from April 2016, Buy-To-Let landlords, and those buying second homes, will be required to pay an additional 3 per cent surcharge on the Stamp Duty charged on the property. Previously in the Summer Budget Mr Osborne had said he intended to ‘start levelling the playing field’ between ‘renters’ and owners, by ensuring that landlords would only receive the basic rate of tax relief on mortgage payments.
Extending small business rate relief in England for another year will also be well received by over 600,000 business owners, particularly independent retailers who already face huge challenges from both online competition and competition from major store chains. However, the devolution of the control of business rates to some major cities won’t help to fundamentally reform the outdated charge which is increasingly becoming a huge burden to many business owners.
Auto Enrolment Workplace Pensions
While there was no fresh news on the future tax treatment of pensions, the Chancellor did say that the dates for the contribution rate increases under auto-enrolment would be pushed back six months to align them with tax years: that alone should save £840 million in tax relief costs. The rate for the new single tier state pension, due to start next April, was set at £155.65 a week.
The Chancellor announced that the government will create 26 new Enterprise Zones. 15 of these zones will be located in smaller towns and rural areas. The total number of Enterprise Zones will therefore increase to 108.
National Living Wage
From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.