Some good news for small business – but is it enough?

The raising of the VAT threshold for small businesses announced by Jeremy Hunt in his Budget statement is undeniably welcome news.

However, raising it to £90,000 falls short of the £100,000 figure that the Federation of Small Businesses had been calling for. Also, it has to be pointed out this is the first increase in seven years.

The hospitality industry will welcome the extension to the freeze on alcohol duty but there will be disappointment the VAT changes didn’t include measures specifically designed to help a sector that continues to be under real pressure.

The VAT rate for hospitality and tourism businesses was reduced during the pandemic but that scheme came to an end in April 2022.

Any new measures to ease the burden would have been widely welcomed. The chancellor said the government was backing “the great British pub”. The industry may well have a different opinion.

The freeze in fuel duty will also be helpful to many small businesses when it comes to transport costs.

The announcement that the higher rate of capital gains tax on residential property will be reduced from 28 per cent to 24 per cent came as a surprise. The thinking behind it is that the lower rate will result in more transactions, leading to more tax revenue.

The chancellor said the furnished holiday lettings (FHL) regime, which gives extra tax reliefs for costs incurred furnishing holiday lets, will be abolished. He will also removing multiple dwellings relief.

The government will hope that the much-predicted 2p cut in National Insurance will be a vote-winner. Coupled with the announcement in the autumn statement the reduction in NI is worth about £900 a year for the average worker.

Whether that figure and the package of measures announced by Mr Hunt will be enough to change the political dial remains to be seen.

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Property tax changes aim to stimulate the market

Chancellor Jeremy Hunt unveiled significant property taxes changes in his Budget statement, aimed at stimulating the market.

He announced both a capital gains tax cut and the abolition of tax relief on holiday lets.

The higher capital gains tax (CGT) rate on residential property, currently at 28 per cent, will be reduced to 24 per cent in a boost for landlords.

CGT on property sales is paid on non-permanent residences such as buy-to-lets, second homes and holiday lets.

Mr Hunt said both the Treasury and the OBR agreed that the move would actually increase tax revenues overall, as it would encourage more property sales.

The CGT property rate will remain the same for basic rate taxpayers at 18 per cent.

In a statement following the announcement, the government said: “Cutting the 28 per cent rate of CGT to 24 per cent is expected to incentivise earlier disposals of second homes, buy-to-let property and other residential property where accrued gains do not fully benefit from Private Residence Relief (PRR).

“This will generate more transactions in the property market, benefitting those looking to move home or get onto the property ladder.”

Meanwhile, the furnished holiday lets (FHL) regime, which offers tax advantages to those who let out a property as a holiday home, will be abolished in April 2025. The chancellor will also remove multiple dwellings relief.

Mr Hunt said FHL was being scrapped because holiday lets reduce the availability of long-term rentals for people.

Under the present rules, landlords can deduct the full cost of their mortgage interest payments from their rental income and potentially pay lower capital gains tax when they sell. Around 127,000 properties in the UK are registered under the FHL regime.

In other Budget announcements, a new excise duty will be introduced on vaping products from October 2026.

‘Non-dom’ tax status will be abolished and replaced with a residency-based system.

And a new tax-free British Isa will be created as part of efforts to encourage more investment in UK companies.

In a statement the Treasury said: “The new £5,000 allowance, in addition to the existing ISA allowance, will provide a new tax-free savings opportunity for people to invest in the UK, while supporting UK companies.”

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NIC cuts – what it means for you

As widely forecast, National Insurance (NI) for employees was cut by the chancellor in his Budget by a further 2p – from 10 per cent to eight per cent.

Making his spring statement in the Commons, Jeremy Hunt said that the measure would be worth around £450 a year for someone on an average salary.

And in its statement The Treasury said: “In the Autumn Statement, we cut employee National Insurance by 2p. Today we’ve cut it again.

“This slashes the main rate of Employee NICs by a third. This helps to grow the economy by encouraging people to work, and puts more money in people’s pockets.”

Employees don’t have to pay NI on earnings below £12,750, and there will be no change to the two per cent national insurance rate on earnings over £50,270.

In another Budget announcement, from April 6 the main rate of Class 4 NICs for the self-employed will now be reduced from nine per cent to six per cent.

Combined with the abolition of the requirement to pay Class 2 NICS, the Treasury says this will save an average self-employed person earning £28,000, £650 a year.

Self-employed people earning less than £6,725 a year can still choose to pay class 2 NICs to gain access to certain benefits, including the state pension.

And those earning between £6,725 and £12,570 are entitled to the National Insurance credits without having to pay the tax.

Mr Hunt said that the overall NICS cuts package was aimed at “rewarding work.”

Both NI and income tax thresholds, which determine when people start paying each rate of tax, have been frozen since 2021. They will stay frozen until April 2028.

The government announced that it is increasing the income threshold at which the High Income Child Benefit Charge (HICBC) comes into play from £50,000 to £60,000, from April 2024.

In addition, the rate at which the HICBC is charged will also be halved from one per cent of the Child Benefit payment for every additional £100 earnt above the threshold, to one per cent for every £200.

This means Child Benefit will not be withdrawn in full until individuals earn £80,000 or higher.

It is estimated that overall, almost half a million families will gain an average of £1,260 towards the costs of raising their children in 2024/25. And 170,000 families will be taken out of paying the tax charge.

The government said it also recognises issues that have been raised around the unfairness in how the HICBC is currently charged on an individual basis.

For example, dual income families on £49,000 each – with a household income of £98,000 – may not be liable to the HICBC, but a single parent earning over £50,000 could.

In response, there are plans plans to administer the HICBC on a household rather than individual basis by April 2026.

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Easing the burden of VAT

In a welcome development, chancellor Jeremy Hunt lifted the VAT threshold for small businesses in his Budget statement.

He announced that it would be increased from £85,000 to £90,000 from the beginning of April.

It will be the first increase in seven years and the chancellor said the move would lift tens of thousands of businesses out of paying VAT.

Announcing the move, Mr Hunt said it would help businesses to grow and add that there was a need to “reward smaller businesses who make a big impact on our society and employ millions of people.”

According to government officials the increase will take about 28,000 small businesses out of paying VAT altogether.

The Treasury said: “The government recognises that VAT can be a burden for some small businesses.”

The Federation of Small Businesses (FSB) had called for the threshold to be raised to £100,000, describing the £85,000 figure as “a straightjacket to firms eager to expand.”

In another of his announcements to help small businesses, Mr Hunt said £200m would be spent to extend the Recovery Loan Scheme.

The VAT threshold increase and the cuts to self-employed NICs delivered by the chancellor were welcomed by the FSB, though it warned that firms still faced serious challenges.

The organisation’s policy chair Tina McKenzie said: “We welcome the increase in the VAT threshold as well as the cut to self-employed National Insurance Contributions (NICs).

“Elsewhere, we were pleased to see a package of small business support in the Budget documents, including commitments to make progress on the HMRC administrative burden and on the national roll-out of the Business Energy Advice Service, as well as extending the Recovery Loan Scheme under a new name – the Growth Guarantee Scheme.

“Small firms are crucial for economic growth, and we were glad the chancellor has said that clearly from the despatch box.

“That said, many of those running businesses face serious challenges – not least through rapid hikes in labour and input costs – and many will have understandably hoped that there would be more measures announced that would help ease the tough decisions small employers are having to make day-in day-out to keep their businesses going.

“There’s still a real gap when it comes to the crunch small firms are facing – and the growth, jobs and economic security small businesses provide is not something the country can afford to risk.

“While keeping the £5,000 Employment Allowance for the 10th year in a row is invaluable, it should have been uprated to keep pace with the National Living Wage – especially if employer tax thresholds remain frozen. Government must not be over-confident on jobs and hours in this economic environment.”

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Alcohol freeze to back ‘the great British pub’

Chancellor Jeremy Hunt announced an extension to the freeze on alcohol duty to February 2025 in the Budget, declaring that the government was backing “the great British pub”.

The move has been welcomed and will benefit 38,000 pubs across the UK. However, there have also been vocal calls for more support for the hard-pressed hospitality sector.

And there was widespread disappointment that Mr Hunt didn’t go further and reduce the industry’s VAT burden. He also had nothing to say about business rates.

Emma McClarkin, chief executive of the British Beer and Pub Association, called the freeze good news for brewers, pubs and consumers, but has warned that the hospitality trade is on a “cliff edge”.

She said: “This April brewers and pubs still face a £450million cliff edge of spiralling wage costs and business rates increases, particularly those pubs that are larger or food-led.

“It is disappointing that the chancellor did not choose to go further with a cut duty, reduce VAT or cap the increase to the business rates multiplier which would have helped mitigate the huge cost of doing business.

“Pressures on our sector remain acute with margins being squeezed to the point where we fear it is likely that a further 500-600 pubs are likely to close this year on top of the 530 that closed in 2023.

“No government should turn a blind eye to the erosion of such an integral economic, social and cultural asset and it is vital that at the election the political parties commit to putting in place a fiscal and policy framework that will see our sector thrive for the long term and not continue to deteriorate”.

She added: “We very much hope that the decision to cut National Insurance contributions for all workers by 2p in the pound will boost consumer spending power and encourage people to enjoy an extra pint in their local.

“But I urge the government to look again at the urgent measures needed to make the cost to doing business more affordable at the next fiscal event and through policy commitments made in the run up to the election to truly back the British pub.”

The Heineken brewery also called for more help. A spokesperson said: “Licensees across the UK now need further help to thrive, in the form of long-term, fundamental reform to the business rates system which despite recent support still sees UK pubs overpaying by £400m.”

Mr Hunt announced that fuel duty will remain at its current rate and be frozen for the next 12 months.

And he has also extended the “temporary” 5p cut on fuel duty, which was set to end this month. The moves will help motorists and businesses with road transport overheads.

In his statement Mr Hunt also revealed the OBR expects inflation to fall below the two per cent target in just a few months – a year earlier than forecast in the autumn statement.

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SMEs face growing credit crunch

Small and medium sized businesses are facing a growing credit crunch, according to new research.

A report by the Federation of Small Businesses (FSB) has revealed they are finding it harder to access finance and are seeing credit costs rise.

The figures show barely more than half (53 per cent) of SME credit applications were successful in the final three months of 2023.

That figure is significantly down from a 62 per cent success rate in the previous three months.

Of those whose credit application was successful, a third (33 per cent) were offered an interest rate in excess of 11 per cent.

The report also reveals that the average rate offered was around 9.3 per cent, up from 8.9 per cent in Q3 2023.

The most common reason for seeking finance in Q4 2023 was cashflow (55 per cent), up from just 26 per cent the year before and from 41 per cent in Q3 2023.

FSB says that other main drivers of finance applications were to expand the business (19 per cent) and to upgrade equipment (15 per cent).

Caroline Lavelle, the organisation’s chief commercial officer, said: “It’s clear that access to affordable finance has become harder recently.”

Last summer the House of Commons’ Treasury Committee launched an inquiry into small business access to finance and small and medium-sized enterprise lending.

The cross-party committee of MPs is examining the key challenges SMEs face when seeking finance, the regulation of small business lending, and the role the government can play in enhancing lending to small businesses.

The MPs said they would be investigating the accessibility of finance, the role of financial innovation in business lending, and the role of the Bank of England’s Term Funding Scheme, credit reference agencies and government state aid in encouraging small business lending.

The committee is also exploring whether SMEs have adequate access to a complaints’ procedure for disputes with banks or lenders.

Meanwhile, small business confidence lost ground in the final three months of 2023, reversing gains made earlier in the year, according to the FSB’s latest quarterly Small Business Index (SBI).

The organisation is calling for “strong measures” in March’s Budget to promote growth, including an increased VAT threshold of at least £100,000.

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Businesses unprepared for new EU trade rules

A large number of small and medium-sized businesses in the UK are unprepared for new EU regulations coming their way, according to a recent survey.

The study by the British Chambers of Commerce (BCC) also showed that the difficulties facing British firms in using the Trade and Co-operation Agreement (TCA) have not eased.

The report, published at the end of last year, highlighted a fresh set of challenges approaching as UK and EU regulations diverge, creating “further headaches” for traders on both sides of the Channel.

The TCA was agreed in late 2020 to allow tariff-free trade with the EU once Brexit took effect. 

But according to the BCC, a high proportion of businesses said trade with Europe in 2023 was more difficult than 12 months ago.

The survey also found that 35 per cent of firms buying and selling services faced difficulties due to the Brexit deal, while a lack of recognition for professional qualifications was exercising 27 per cent of firms.

And awareness of upcoming changes in trade rules and regulations being made by either the UK or the EU was “alarmingly low”, with 80 per cent or more of firms knowing no details of the legislation.

That included knowledge of the Electronic Trade Documents Act, Export Health Certificate requirements, new labelling requirements, the EU’s Carbon Border Adjustment Mechanism, new checks on food imports, safety and security requirements for EU imports, UKCA and CE marking, and new EU VAT laws.

Shevaun Haviland, director general of the British Chambers of Commerce, said: “If we want to put more money into people’s pockets and get businesses growing then we need to boost our exports, and the EU is our number one market.

“That’s a reality that should not be ignored by our political parties, but I also recognise that improving our trading relationship with the EU must be realistic.

“Any changes we make must work for both sides and respect the agreed framework we operate in.

“There are lots of things we can do to make our current trading arrangements better, but a growing worry is how we handle further changes coming down the track.

“EU businesses have been largely able to carry on importing goods into the UK as they did before Brexit, but that will change and could lead to significant new disruption.

“The rules and regulations governing trade aren’t static. Both the UK and EU will be making significant changes in the next few years that could have big repercussions.

“We need to take a smart but flexible approach to how we handle these alterations to keep their impact to a minimum. It is in no-one’s interests to damage our trading relationship further.”

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Transport firm’s 10-year growth drive

A successful transport/logistics business is celebrating a milestone anniversary. February 2024 marks 10 years since Fenn Logistics Limited was acquired by current managing director Gary Major.

WNJ acted for the current MD during the acquisition process in 2013/2014 and today retains a very close relationship with the company, providing it with accountancy, taxation and business advisory services.

The past decade has seen Fenn Logistics, based near Burton-on-Trent, on a steady growth path, despite the many and varied challenges that have faced the logistics sector.

Over that time the company’s fleet has expanded from nine vehicles to 22 and its driving workforce has risen from nine to 31.

That growth has been driven by Fenn’s strong relationship with a key client, one of the largest food manufacturers in Europe, which sees it provide dedicated vehicles and drivers for its UK operations.

The business has also had a major rebrand during the past 10 years – changing its name from RG Fenn to Fenn Logistics to better represent the current operation.

There have been a series of big challenges along the way, not least the Covid pandemic. It saw Fenn and its team working hard to deliver vital food supplies up and down the country as part of the supply chain ‘frontline’.

As well as the pandemic, high fuel prices, HGV driver shortages and global events such as the war in Ukraine have all had an impact on the sector’s fortunes.
However, Fenn Logistics, which was originally founded more than three decades ago, has navigated through these uncertain times to reach its latest milestone with a strong sense of stability.

The company continues to provide solutions for some of the biggest names in UK business with its strong commitment to excellence. It has key clients across the country handling food, beverages and general cargo.

Gary Major, current managing director and owner, has been in third party logistics for more than 30 years and post-acquisition brought a different approach to managing its customers’ businesses, with vast experience in transport, warehousing, stock control, e-commerce and home delivery.

He says: “We have seen constant growth during the 10-year period since the acquisition and much of that has been as a result of our relationship with a key client that has been built up over a quarter of a century.

“Over the past decade that relationship has seen the number of vehicles and drivers we have committed to serving them more than triple.”

He adds: “Our place in the supply chain, that ‘final mile’, delivering to the client is what everyone gets judged and measured on. It’s a tough place to be and the hardest part of the journey.

“We’ve had our challenges, not least the pandemic. However, we’re seeing some of the issues, such as driver recruitment, begin to ease.

“It has been some journey over the 10 years and the team at WNJ have been with us every step of the way, starting with the support they gave me during the acquisition right up to the present day and our 10th anniversary.”

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Inheritance Tax is back on the chancellor’s list

Scrapping Inheritance Tax (IHT) is back on the Cabinet table, with reports that Prime Minister Rishi Sunak is considering the move as he looks towards this year’s general election.

There are now strong suggestions that the tax is in chancellor Jeremy Hunt’s sights again, ahead of the spring Budget, which will take place on March 6.

Political pundits believe it may well be the final opportunity for the Conservative government to announce any significant tax changes before voters go to the polls.

As well as the axe falling on IHT, there is already speculation that a range of tax cuts may be pulled out of the chancellor’s red box, including cutting the basic 20 per cent rate of income tax.

There was strong speculation IHT would be axed last November as part of the chancellor’s raft of Autumn Statement pronouncements.

But that talk failed to materialise. Now, as the Tories look to put a clear divide between themselves and Labour on tax matters, it appears this may be the year IHT is disposed of.

IHT is owed on the part of someone’s estate above the tax-free threshold of £325,000, which can rise to £500,000 if a home is given to a child or grandchild.

The current rate is 40 per cent. Scrapping the tax would cost the Treasury around £8bn a year.

According to reports, IHT accounts for less than one per cent of total HMRC tax receipts. However, the sums gained by the Treasury have risen substantially each year since the pandemic, with the annual sum rising by 38 per cent since Covid struck.

In 2019/2020, before the pandemic, IHT receipts totalled £5.1bn, marking a -4.4 per cent fall on the previous year. Last year, the £7.1bn collected marked a huge 17 per cent year-on-year increase.

The IHT nil-rate band, which is the maximum amount a person can inherit before paying the tax, has been stuck at the £325,000 figure since 2009 – despite rising house prices. The tax’s gifting allowance of £3,000 a year has also remained unchanged since 1981.

Alongside claims of possible tax cuts, the housing secretary Michael Gove told The Times newspaper that help for first-time property buyers would “definitely” form part of the Conservatives’ pre-election appeal to voters.

There are reports that could include resurrecting a form of the ‘Help to Buy’ scheme,’ which ended last year.

Meanwhile, there are ways in which the existing IHT regime can currently benefit your own estate planning and ensure a fairer distribution of your assets through your family.

As with most tax issues the key here is to start your planning early and to get a good handle on your estate. Having a clear strategy is also important.

The £3,000 a year annual gift allowance is good place to start. So is reviewing your will and making sure your assets will be dispersed the way you wish.

Whatever happens to IHT in the future the question you should be asking now is: “Is my estate planning up to date?”

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Inflation falls but when will we see interest rate cuts?

The latest UK inflation figures, published last month, showed a sharp fall to 3.9 per cent in the year to November 2023.

As we move into 2024, the big question being posed by businesses is, when will interest rates start to head in the same downward direction?

The welcome fall in overall inflation – down from 4.6 per cent in October and from a recent peak of 11.1 per cent – has increased the pressure on the Bank of England (BoE) to begin cutting rates from their 15-year high of 5.25 per cent.

And there appears to be some good news ahead. Goldman Sachs has upgraded its outlook for UK growth and predicts the BoE will reduce borrowing costs, starting in May.

The Wall Street investment bank believes there will be a series of interest rate cuts until they hit three per cent in May 2025.

Business organisations have been increasingly vocal in their calls for interest rate falls.

Martin McTague, national chair of the Federation of Small Businesses (FSB), said: “As inflationary pressures ease, small firms will be wanting the Bank of England to indicate when interest rates may start to fall – this would increase access to finance, drive economic growth and provide a fighting chance at avoiding a recession.

“Businesses will be hoping for a stable environment characterised by more predictable market conditions and lower costs in 2024.”

The Institute of Directors (I0D) has also called on the bank to slash interest rates son as its research revealed confidence in the UK economy ended 2023 sharply lower as falling inflation failed to boost optimism ahead of the new year.

Dr Roger Barker, director of policy at the IoD, said: “Although aspects of the business environment have improved in the last couple of months, particularly with regard to inflation, this is not yet exerting a meaningful impact on business decision-making.

“Business leaders remain extremely cautious about the outlook for the wider economy over the next 12 months, although they are more optimistic about the prospects for their own organisations.

“In the coming months, the Bank of England will be considering its next step in term of interest rates. Based on the evidence of this survey, an early cut in interest rates would be justified in terms of helping to kick-start business confidence.

“With inflationary pressures abating, business is in dire need of a boost if it is help drive meaningful economic growth in 2024.”

Meanwhile mortgage lenders have started the year by cutting rates. The UK’s biggest lender, the Halifax, has cut some interest rates by close to one percentage point, with others following suit.

Mortgage approvals in the UK picked up in November, with consumer borrowing also on the rise, according to the Bank of England.

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