Budget 2015 – How does it affect SMEs?

 In Small Businesses & Startups

As the dust settles and the details are disclosed, now is the perfect time to look back at the Chancellor’s recent Budget 2015 statement and see what is in store for Britain’s SMEs.

Class 2 National Insurance Contributions abolished

For the self-employed, George Osborne announced plans to completely abolish Class 2 National Insurance Contributions (NICs). Currently any self-employed person earning more than £5885 per year is charged £2.75 per week, billed and paid quarterly. Although a relatively minor saving (£143 per year), the abolition of Class 2 NICs is a welcome reduction in bureaucracy.

The Chancellor also announced plans to reform Class 4 NICs by introducing a “contributory benefit test”. What this test involves has not yet been announced – more details are expected should the Conservatives win the General Election in May.

Businesses are also being encouraged to employ more young people after it was announced that from April 2016 there will be no NICs required for employees aged under 21. Not only will this measure help get more young people into work, but it will also help reduce the costs of employing people for SMEs.

Personal Allowance increase

Delivering on the commitment to allow workers to keep more of their wages, the personal allowance is set to increase from £10,600 to £10,800 in the 2016-2017 tax year. This will increase again to £11,000 in the 2017-2018 tax year. For higher earners, the 40% tax threshold will also increase in 2017, moving from £42,385 to £43,000 – well above the headline rate of inflation.

Any such increase in the Personal Allowance is a welcome bonus for the self employed, or SME owner. And the commitment to further increases in the coming years is also welcome.

The end of Self Assessment

Before the release of the Budget 2015 statement, many economists had predicted an abolition of Self Assessment, and sure enough, this formed part of Osborne’s promises. The government plans to “radically simplify tax administration by abolishing the annual tax return”, instead collecting tax and NICs through digital accounts.

The specifics of the plan have yet to be announced, but surely few SME owners will miss the end-of-January rush to complete the online tax return.

An overhaul of Business Rates

Business leaders finally got their wish when the Chancellor promised a long-overdue review of Business Rates. The Budget 2015 statement reveals “the government wants to ensure that the tax system provides stable and sustainable revenues to fund public services in the least distortive way” – that is, that the rates are still appropriate for the modern economy.

The government is also asking Local Authorities to exercise their discretionary relief powers to kick-start the local “sharing economy”, encouraging the creation of shared workspaces and maker spaces.

Although the review is currently underway, there has been no definite date for the publication of its conclusions. As with any government report so close to a General Election, we must hope that the report’s recommendations will still be taken onto the agenda by the new government in May.

Recent Posts
HMRC tax investigation SMEs