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In what was claimed to be the last spring budget, a term which was used 24 years ago by Chancellor Norman Lamont who was then sacked ten weeks later, the surprises were in short supply. Following an autumn statement in which detail was provided in great supply, the Chancellor provided a positive update which confirmed continuing robust growth, a two thirds reduction in the deficit and increased opportunities for young people with the only clear negative being productivity remaining stubbornly low.
Whilst the office for budget responsibility predicts continued growth over the next few years an alarming statistic was presented, which confirmed the UK is currently £1.7 trillion in debt from years of overspending. This number was broken down to a debt level of £62k on every household in the UK, a significantly high example, which business owners reading this will surely agree compels the UK to continue on the path to balancing the books. Family businesses account for over 70% of private sector firms in the UK and it is undoubted that they are going to be pivotal in ensuring the UK continues to move forward.
A growing economy, with increased opportunities and employment, is an attractive market place for any family business. At first glance the budget appears to be removing some of this opportunity for success by increasing the costs although a second glance highlights some positive news.
The rise in Class 4 National Insurance in April 2018, from 9% to 10% and a further 1% rise the following year will undoubtedly be an additional cost although this will be offset by the abolition of Class 2 National Insurance also from April 2018. Initial calculations would actually suggest that this will create a cost reduction for self employed individuals earning under £16,250, a measure designed to help low income families.
Whilst personal allowances, the amounts you can earn before you start paying tax, will continue to increase towards a target of £12,500 by 2020, from April 2018 the new dividend allowance which was introduced in April 2016 will see a reduction from £5,000 to £2,000; a reduction which was highlighted further by the announcement of a consultation over the summer. The consultation will look specifically at the tax gap between company owners and self employed individuals. The Chancellor said that tax should not be a motivation when deciding upon the structure of a business nor should there be a difference between the amounts of tax paid and the benefits received. The outcome of this consultation will be an interesting read and will undoubtedly shape the content of the next budget, which is due in the autumn.
Other positive news includes the extension of small business rates relief, a £1,000 business rate discount for pubs with a rateable value under £100k, and confirmation corporation tax will reduce to 17% by 2020. The tax credit taper relief rate is reducing from 65% to 63% which will ensure tax credits will increase for low income families.
The most noticeable increase, which will provide an additional cost to employers, is the rise in the National Living Wage (NLW) which was announced in autumn and will escalate to £7.50 per hour. Family businesses will have to absorb some of this rise, unless they operate in a sector which allows the increase to be passed to the customer, easily. Employees are usually an extension of the family in any family business and whilst this may be a cost many business owners are likely to see this as a positive impact allowing them to further support, financially, the individuals that help them to be a success.
As with every budget there will be perceived winners and losers although, what was abundantly clear was the desire to achieve tax equality and to ensure everyone in the UK contributes to reducing the deficit in proportionate shares. Whether you agree or not, the Chancellor is determined to build a stronger, fairer and better Britain. Whatever the journey that this determination takes the country on, family businesses will continue to grow, innovate and succeed which is why they are the largest sector in the UK economy. Every family business is unique but as with every budget, it is a chance to re-focus the plan and adapt to changing rules and every family business should be extremely proud of what has already been achieved and the success yet to be realised.
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