What the budget means for your small business
Philip Hammond delivered his 2018 Budget, declaring that “austerity is coming to an end”. But among all the changes, cuts and additional spending, what does that really mean for small businesses?
Whether you run a dog walking business, practice as a therapist or own a gym, aspects of the Chancellor’s plans will affect you in some way.
Here are a handful of the major points likely to have a baring on sole traders and small business owners.
Increase to the Income Tax threshold
Something that will affect all of us, not just business owners is the increase to the threshold of which we all pay income tax.
Introduced in April 2019, the new rules will mean workers will be able to earn up to £12,5000 before being subject to tax. This is an increase from the £11,850 threshold currently in place.
Higher earners can also rejoice. Those subject to the higher (40%) rate of income tax will be able to earn up £50,000 from next year. Although this is not a newly announced initiative, the Chancellor has opted to bring this threshold rise forward a year to 2019.
Freeze on VAT threshold
There’s also a relief for small business owners and sole traders when it comes to VAT. In his previous budget Philip Hammond announced that the threshold would be frozen until 2020. Extending that initiative in his recent announcement, he declared an extension to this freeze to the tune of a further two years.
This means that small businesses will not have to register for VAT until their turnover reaches £85,000 until at least 2022.
A slightly surprising inclusion in his Budget, many commentators had expected the Chancellor to actually slash the threshold in this year’s spending plans.
Instead, the freeze means small enterprises continue to enjoy a much higher threshold than in many other countries. For example, in Germany, businesses only have to earn €17,500 before having to register, while in the Netherlands it’s a minute €1,345.
A rise to the National Living Wage
For any employer currently paying staff the National Living Wage, their spend on wages is set to go up from April. The Chancellor announced a 4.9% rise for those earning the least, with the new minimum wage increasing from £7.83 to £8.21 an hour for over 25s.
This means those at the lowest end of the salary spectrum can expect to earn an extra £690 a year thanks to the increase.
The rise comes amid the Government’s plans to rise the National Living Wage to be 60% of ‘median earnings’, i.e. the average amount of money a British worker earns an hour. The latest increment marks a bigger jump from 2017’s budget which saw the minimum wage for those 25-plus rise 4.4% from £7.50 an hour.
Apprenticeship contributions reduced
There was some good news for small enterprises such as gyms or sport coaching businesses that employ apprentices. Previously businesses that hired apprentices were required to contribute 10% of the cost of their training outside of the workplace. In the 2018 Budget, however, this amount has been reduced to 5%, coming into affect in April 2019.
This is something the Association of Employment and Learning Providers have been campaigning for. It’s their belief that a higher rate puts small businesses off hiring apprentices, meaning fewer young people are getting this vital vocational training.
Chief executive, Mark Dawe said: ‘This is a major and positive shift which AELP has been pushing hard for since before the levy was introduced and it should enable providers to work with smaller businesses to start getting back to offering apprenticeships to young people and local communities.”
With the amount they are required to pay for training halved from next year, it is hoped that more and more small businesses will go down the route of hiring apprentices.
You can read the full 2018 Budget document on the Government’s website, while a breakdown of the key topics can be found on the BBC website.