The Budget – Key Points for Small Businesses

Several changes were announced on 29th October 2018 following the annual Budget provided by Chancellor Philip Hammond, but what does this mean for you as a small business?

National Living Wage Increase

Who does this affect?

One of the biggest changes affecting small businesses with employees relates to the increase in National Living Wage (NLW). At present employees above the age of 25 must be paid a minimum of £7.83 per hour, this will however change in April 2019 when the NLW rises to £8.21 per hour.

How does this affect your business in the real world?

Lets say that an employee works a 37 hour week at the current rate of £7.83, receiving a gross wage of £289.71 per week. After the rise this will mean that the cost of paying the same staff member will be £14.06 higher per week at £303.77.

Personal Allowance Increase

Who does this affect?

If you are self-employed, there is good news and bad news ahead as it was announced by the Chancellor that the personal allowance threshold will increase from £11,850 to £12,500, meaning you can earn more before you pay any tax. The downside is that in future years, the personal allowance will rise with inflation meaning the price of goods and services will also rise, reducing much of the benefit of the increases provide.

How does this affect your business in the real world?

A self employed courier earning £25,000 a year would currently pay tax based on profits of  £13,150. However when the increase comes into force in April 2019, taxes will only be calculated on £12,500 of income – that’s a reduction of £650.00 of taxable earnings.

Higher Rate Tax Payers

Who does this effect?

If you’re a higher rate tax payer, there is good news here too with the 40% tax band rising from £46,350 to £50,000, so more tax will be paid at 20% rather than at 40%.

How does this affect your business in the real world?

For a Director earning £60,000 per year, their tax bill would currently be £9990.00 (£46,350 x 20% + £1800 x 40%). With an increase in the higher rate threshold, their tax bill would be reduced by £360.00 to £9630.00 (£48150 x 20%).

The Apprenticeship Levy

Who does this affect?

From May 2017, all businesses with an annual PAYE bill above £3 million a year, have been required to pay an Apprenticeship Levy. This levy exists to fund apprenticeships and make it easier to apply for and pay for courses and training. Non-levy paying businesses are currently required to share the cost of apprenticeship training with the Government at a rate of 10%, this will however be reduced to 5% in 2019.

How does this affect your business in the real world?

For small non-levy paying businesses, the cost of funding an apprenticeship programmer for employees via ‘co-investment’ scheme will cost 5% less. So for a small business taking on an apprentice, the apprenticeship course which is £5,000 will require a contribution of £250.00 instead of £500.00

Business Rates

Who does this affect?

Since 2017 there has been much controversy following the revaluation of 1000’s of business premises on the high street leading to a steep increase in rate expenses for many independent retailers. Whilst the Small Business Rate Relief Scheme assists some small businesses, the revaluation lead to many who had previously been within the exempt bracket, becoming ineligible to claim. The Budget announced a reduction of a third for all small business premises with a rateable value of £51,000 or less.

How does this affect your business in the real world?

A small business with a current rateable value of £51,000 must use the standard multiplier amount of 49.3p, equal to £25,143.00. Over the next two years, this will fall to £16,762; a saving of £8,381.00.

The Annual Investment Allowance (AIA)

Who does this affect

For businesses spending large amounts on capital items such as plant and machinery, the current Annual Investment Allowance (AIA) will be increasing from the current level of £200,000 to £1 million in 2019/2020 and 2020/2021.

How does this affect your business in the real world?

This means that businesses can now claim £800,000 more of allowable capital purchases, writing off 100% of the costs in the year of purchase.

Other Notable Changes

Our final thought falls to two other changes which have the potential to affect small businesses. These relate to the use of plastic packaging and takeaway coffee cups.

Businesses will be taxed on their use of plastic packaging materials which are less than 30% recyclable where in stark contrast, there will be no tax on takeaway coffee cups, following a prior call by MPs for a 25p ‘latte levy’. This will of course be monitored and amended as required.

If you have any questions about who these changes affect your small business, contact us on 01395 320316 for an informal discussion.

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