In this issue...
Was the budget a damp squib? What does it all really mean for business?
So, the budget came and went yesterday and I think we all worried it was going to be a lot worse than it actually was. The damage to business caused by the money grab required to offset the Covid recovery costs was considerably less than some predictions so that was good news. That said, it wasn’t particularly good for some SMEs either. Nothing still for the Forgotten directors in terms of tangible, grant style, help just a possible throwing of a bone in the form a new loan scheme. The predicted end to furlough came but not necessary in the way we expected. In fact, the only big surprise was on capital gains tax which seems to have escaped the chop, well, for the moment anyway. There is still a good chance that Mr Sunak will go after it in the interim period before the next budget.
For most SMEs the big worry was that there would be a huge change to corporation tax. Which there was, but it was more of a whimper than a bang for most of us. Before we get into that though, lets recap in the other main areas and what, if anything, you need to think about.
• Self-employed grants have been extended and include businesses created since lockdown who filed a tax return. There is a set of criteria to meet which are pretty straightforward and a new reduced grant level. If you are eligible you can apply for two further awards.
• Furlough comes to an end at the end of September. Well, no surprise here, but the big change was that in July you will need to contribute 10% of the cost and in August you will need to contribute 20%. So, that needs to be accounted for in your cashflow if you have furloughed staff that will still be out at that time.
• Restart grants of up to £18,000 will be available for hospitality and leisure. Many say this isn’t enough, at the moment though that is the offer, so you need to be keeping an eye on the application process.
• National living wage will increase to £8.91 an hour. That’s a direct cost for your payroll so it needs to be considered in the cashflow forecasts. It’s not a huge increase to be fair, and it was to be expected.
Things to consider going into the next year
The big monster in the shadow pre-budget was always the spectre of an increase in corporation tax. The UK has some of the most favourable levels of tax for business in the Europe arena and it was an obvious target for an increase, because it isn’t as visible as other tax hikes. When the hike announcement came, I suspect most business owners breathed a big sigh of relief. The 25% announcement was a big jump, but the required profit levels mean that for the majority of small businesses it isn’t an immediate concern. The new rates are:
• Profits of £50,000 or less will pay the same 19%
• There will be a sliding scale for business who earn profits up to the top rate
• Profits of over £250,000 will be taxed at the 25% top rate.
What all that comes down to in practical terms is probably a no change scenario.
One way to mitigate the higher corporation tax rates is to reinvest profits back into your business. This could be done through marketing and growing your team or, if you really want to take advantage of the new super deduction incentives, it could also be done through buying equipment or research and development. Investing in the value of your business will reduce your corporation tax bill and it will also mean you benefit from entrepreneurs relief which is a really low rate of tax available to people selling businesses. The higher corporation tax rates will also make contributing to pension schemes far more attractive for business owners in the future.
If you do think about more staff, then an apprentice may well be an option. The Chancellor doubled the relief for taking on an apprentice to £3,000 so there would seem to be an obvious choice there if you want to re-invest your profits.
One final word of caution on wages. Although no actual personal tax increase was applied the expected freeze on tax thresholds did occur. This is an area where you may need to be a little careful over time. Due to what is known as ‘bracket creep’ you could find yourself taking an increase in salary in line with inflation and then putting yourself into a new tax bracket because that didn’t increase with your wage. There are other options such as pension payments that could help offset this if it is a potential problem.
In the final analysis, the budget could have been better but also could have been a lot worse and for the most part, with a bit of careful planning, it shouldn’t impact on businesses too hard at all.
The Road Less Stupid by Keith J Cunningham.
Perhaps one of the unavoidable aspects of reading a business book is that it will make you feel uncomfortable at some point. In much the same way that a good ghost story sends chills down your spine, maybe a good businesses advice book makes you squirm a little as you recognise where you could improve on past mistakes. Don’t get me wrong ‘The Road Less Stupid’ isn’t some sort of telling off for doing the wrong thing but it is quite clear about just how stupid we can all be.
Central to Cunningham’s approach is the need to appreciate the importance of thinking. I suppose we all like to believe that we are astute thinkers and that we go through our business lives logically and sensibly. The Road Less Stupid picks at the threads of that belief like someone pulling at an old sweater until a hole appears. For me, the big take away concept from this book is the system of focusing on thinking time. Every chapter takes an aspect of business and leaves you with questions to actively think about and the central idea is that you carve time out of the day to actually give your full attention to thinking about your business in an unemotional and clear way.
So, OK, you are probably immediately having the issue I had with that by asking where the time is coming from to just stop everything for a bit of a think? Cunningham is very clear on the importance of thinking and makes a very persuasive argument for finding and allocating that time.
The Road Less Stupid is well worth the read and is frequently cited as one of the most influential of business books. It is worth the time and certainly should be on your shelf.
Grants for small business from the BIPC Northampton
The Business and IP Centre have just launched a small business initiative grant scheme which may be of interest to younger businesses or those looking for a new direction. They are offering a chance at a £1500 grant for Northamptonshire based businesses that have been operating for less than a year or wanting to get started. The selected finalists will present in front of a Dragons Den style panel. The cut off for applications is quote close (28th March) so if you are interested you need to pop on over and check it out.
See the Small Business Grants initiative page for more details
£200 for free anyone?
Don’t forget that if you introduce a new client to Northants Accounting, once they have been with us for a qualifying period, we will give you £200 as a thank you! T&Cs apply.
If you have a company vehicle there is a potential tax benefit to going electric. As the tax paid on company vehicles is based on their emissions, an electric vehicle could save you in road tax, benefit in kind costs and the congestion charge if you are a frequent visitor to London.
As with all car related decisions in a business, it does require some thought though, so please call us to discuss if you need advice.