Within two weeks of the Conservative Party winning the 2015 General Election, Chancellor George Osborne announced that a ‘Stability Budget’ would take place in July, claiming that he did not want to wait to turn the promises made in the election into a reality.
During this announcement, Osborne said he would provide details of how the government plans to eliminate the UK’s budget deficit and run a surplus by the end of the parliament, as well as create a further three million apprenticeships.
As promised, Osborne announced a secondary budget in July. Describing it as a ‘big Budget for a country with big ambitions’, the Chancellor acknowledged the ongoing risks posed by the global economy and reported that the Office for Budget Responsibility had revised down its economic growth forecast to 2.4% for 2015 and revealed that a budget surplus will now occur in 2019/20 – a year later than originally planned.
How does the Secondary budget affect small and medium-sized businesses?
The Chancellor announced that the corporation tax main rate will be 19% for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019, and will be cut to 18% for the financial year beginning 1 April 2020.
New payments dates will also be introduced for companies or groups of companies with annual taxable profits of £20m or more. These companies will be required to pay corporation tax in quarterly instalments on the third, sixth, ninth and twelfth months of their accounting period. This will come into effect for accounting periods starting on or after 1 April 2017.
National Minimum Wage:
Also, from April 2016, a new National living Wage in the form of a premium on top of the National Minimum Wage will be introduced for workers aged 25 and above. This will be initially set at £7.20 and is expected to exceed £9 by 2020.
The Chancellor says that this will result in 6 million employees see their pay rise.
Costs of employment:
Osborne announced a 50% increase to the national insurance employment allowance from £2,000 to £3,000. This will help small business owners to reduce their wage costs and could contribute to offsetting the increased Living Wage costs.
Annual Investment Allowance:
The Annual Investment Allowance, which is currently set at £500,000, allows small to medium-sized firms to make tax-deductible investments in equipment, plant, and machinery, encouraging businesses to invest in future productivity and growth.
The allowance was due to reduce to £25,000 from January 2016, but Mr Osborne has set the new allowance at £200,000, which could potentially add £1bn to GDP by 2020.
New enterprise zones:
The Chancellor announced that there will be a creation of new enterprise zones. Enterprise zones are areas where small firms pay reduced taxes and receive greater business support, in turn helping to create more start-up businesses and stimulate growth within the small businesses sector. The Government claims that the existing zones in England have helped to create more than 15,000 jobs.
Small firms in Liverpool, Manchester, Leeds and Sheffield are most likely to benefit from the new zones, with smaller cities invited to submit their pitches also.
Major lenders through the UK will soon be required to disclose the financial information that they keep on small businesses to give them the best chance of securing loans.
Under the new proposals, banks will be forced to share their SME credit information with other lenders as well as online platforms that can match those who have been rejected a loan to alternative providers.
From April 2016, Dividend Tax Credit will be removed and replaced with a new tax-free allowance of £5,000 per year for all taxpayers. As a result, some business owners may pay less tax.