Following the Chancellor’s last Spring Budget, Menzies Business Services sector team have reviewed the impact of Philip Hammond’s Spring Budget 2017 update upon the UK business services community.
Comments provided by Menzies Partner Peter Noyce and Arinze Nwobodo.
Increasing the level of national insurance paid by the self-employed by 2% over the next two years, and the reduction in the dividend tax allowance from £5,000-£2,000, is likely to eliminate any remaining tax benefit left for being self-employed or operating through a company compared to that of being employed. In line with recent court cases concerning Uber and Pimlico Plumbers, there seems to be a shift by Government and the courts to encourage people to adopt employed rather than self-employed status.
Working people will realise that given the absence of any tax advantage, the beneficial protection of being employed is therefore more attractive than it used to be given these changes. That said, for the employers, the cost of employers’ national insurance and auto enrolment pension contributions mean that the cost of their labour force, however it exists, will be going north in the next few years.
Whilst we may view this as short termism from the Chancellor, if we were to stand back and look at this over the next few decades and beyond we would see that having more and more people employed and therefore building up pension funds through auto enrolment and the increased tax take, of course, perhaps is not that bad for the country as a whole.
It was good to see that the Government has listened to the countless businesses across the South East and set up £435m for firms affected by increases in business rates including the £300m hardship fund for the worst affected.
Whilst this is welcome, it is still our view that this does not go far enough with the cocktail mix of rising inflation from the devaluation of the pound (increasing input costs for firms and reducing the purchasing power of customers), the apprenticeship levy, auto-enrolment, and the business rates revaluation all having impacts at similar time periods.
With the current uncertainty encircling the economy from the impending Brexit negotiations and the Continent all too willing to try and lure our high performing business services sector across the Channel, the Chancellor should be doing all he can to encourage business and safeguard our prized asset. In our opinion, this might mean a root and branch review of whether business rates remains fit for purpose in our 21st century economy as it disproportionately impacts the SMEs which are the lifeblood of the economy.
Get more input on the Spring Budget 2017 implications for the Business Services sector by speaking to our sector team.
Find out more about the Menzies Business Services sector services.