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Blog - Published 23rd November 2018

The impacts of the budget on entrepreneurs

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The chancellor’s Autumn Budget contained a lot of good news for businesses, encouraging investment in the short term, as the country approaches Brexit, whilst also holding back some firepower in case additional government intervention is needed next year.

Is the end of austerity in sight?

Backed by a £13bn windfall of higher-than-expected tax receipts and lower borrowing figures, the chancellor confirmed his intention to increase public spending on the NHS by £20bn per year, over the next five years. However, the Chancellor also advised that while an end to austerity is ‘in sight’ there is still a lot riding on the Brexit negotiations and a different strategy would be required if the government is not able to secure a frictionless trade agreement with the EU.

Plans to increase Annual Investment Allowance

coinsAmong the key announcements for business, the chancellor outlined plans to up the Annual Investment Allowance. The tax-free amount businesses can spend on building and machinery will increase from £200,000 to £1m from 1 January 2019, for a two-year period. While this may be popular with larger businesses, especially those planning to make investments in new plant or machinery in the near future, many, businesses might have preferred freedom to plan their investments over a longer timescale.

Of more interest for some SME businesses may be the reintroduction of capital allowances for eligible construction costs on non-residential structures and buildings. This will enable tax relief to be claimed for the capital costs of constructing, converting or renovating new premises at an annual rate of 2%.

Apprenticeship Levy

Addressing another key issue for businesses in the current climate, the chancellor announced a £695m initiative to help small firms hire apprentices. This includes plans to cut the small business co-investment level for apprenticeships from 10% to 5%. Which could be particularly beneficial to many small and medium-sized businesses that are worried about the impact of Brexit on their access to skills in the future and could create opportunity to introduce and grow their own talent.

Entrepreneurs’ relief

When Entrepreneur’s Relief was mentioned for the first time in the chancellor’s speech, it appeared possible that he might be intending to curtail or even scrap the scheme. Fortunately, he has decided to retain it, whilst tightening some of its eligibility criteria. Specifically, the move to double the qualifying period for Entrepreneur’s Relief to 24 months will take effect from April 2019 and is intended to encourage longer-term investment in businesses.

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Do you qualify for entrepreneurs’ relief?

In view of this change, investors who are unclear about whether they will qualify, may need to delay business sales and it will be important to get their timing right. The changes could also potentially have a knock-on impact on the Enterprise Management Incentive (EMI) scheme and businesses may need to bring forward the date at which share options are issued to employees ahead of a planned sale.

IR35 in the private sector

Fixed term contractsA less popular announcement was the government’s plan to roll out the IR35 public sector rules to large and medium private sector businesses, with effect from April 2020. Businesses in the construction and manufacturing sectors are among those most likely to be impacted, which may affect the employment status of contractors or off-payroll workers. These changes could force some highly-skilled contractors to rethink their plans and employers will be concerned that some of them could look overseas for employment, in territories where tax conditions are more favourable.

When will IR35 take effect?

The changes, due to take effect in April 2020, mean contractors will no longer be responsible for deciding if IR35 applies to them and this responsibility will shift from their personal service company to the end user of their services. In essence, this means that businesses that want to continue to use contractors, because of the flexible terms they offer, will have to make sure they are treated as self-employed in the future.

Will Sweeney - Menzies Accountant

This was a Budget that will benefit businesses, particularly in the short term. However, with Brexit fast approaching there is still much uncertainty and businesses will need their own plans and possibly their own ‘buffer’ in place to ensure their success in the longer term.

For further information, please contact Will Sweeney Tax Technical Senior Manager at accountancy firm Menzies on +44 (0)1252 894913 or email wsweeney@menzies.co.uk.

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William Sweeney - CTA, ATT

Tax Technical Senior Manager

William Sweeney is a Senior Manager in Menzies Farnborough office and is the Firm's Tax technical specialist supporting the business and personal tax teams.