Osborne signals a rates cut to keep small businesses on track.
The Chancellor has eased some of the financial pressure on Britain’s small businesses by unveiling a surprise package of tax breaks, including increases in business rates relief.
Under the current system, small business rate relief is only available to companies with an assessed value of less than £6,000. But following a long-awaited review, those whose shops, offices or industrial spaces have an assessed value of up to £15,000 will be able to receive relief.
A further measure sees the threshold at which companies start to pay higher business rates rise from £18,000 to £51,000. The changes, announced in last week’s Budget, will be effective from April 2017.
Mr Osborne claims his reforms will lift 600,000 small businesses out of rates altogether, and deliver a reduced charge to a further 250,000. He told MPs that “a typical corner shop in Barnstaple, hairdressers in Leeds and newsagents in Nuneaton will pay no business rates”.
The reforms will be applauded by industry groups that have long lobbied for a reduction in the costs that weigh heavily on small enterprises. Tony Müdd, divisional director at St. James’s Place, also welcomes the new measures: “It will give a financial leg-up to companies that arguably need it most.”
Furthermore, the Chancellor has aligned rates of Stamp Duty Land Tax (SDLT) for commercial property with those of main residences. There is now a zero-rate band on purchases up to £150,000; 2% on purchases between £150,001 and £250,000; and 5% from £250,001. While the Chancellor says that 9% of purchasers will pay more, he expects over 90% to see their tax bills cut or stay the same.1
Race to the bottom
Meanwhile, Mr Osborne has indicated that he is keen on keeping the UK’s Corporation Tax rate competitive by announcing another reduction. In four years’ time it will fall to 17%, a further percentage point knocked off the previously announced rate. However, the UK is not the only country reforming its corporation tax system. Six of the G20 countries have announced plans to cut their corporate statutory tax rate by 2020.2
Nonetheless, he claims that the reduction will “deliver a low tax regime that will attract the multinational businesses we want to see in Britain”; perhaps a sideswipe at those who exploit tax loopholes and shift profits overseas.
Indeed, to help pay for the tax breaks described earlier, there will be a crackdown on multinational corporations employing methods of tax avoidance and evasion. Closure of corporate tax loopholes is expected to raise £9 billion, and new tax avoidance and anti-evasion measures will raise a further £12 billion from big businesses by 2020.3
While cynics argue that the package of new measures could be a ploy to get the small business community onside before a crucial vote on Europe, the reforms will surely lift the spirits of Britain’s entrepreneurs, against a backdrop of weaker global growth and lower productivity.
The outlook for world trade is, in the words of the Office for Budget Responsibility, “materially weaker”. Despite the new tax breaks available, conditions for many UK businesses remain challenging.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
1 ‘Oral statement to Parliament, Budget 2016: George Osborne’s speech’, https://www.gov.uk/government/speeches/budget-2016-george-osbornes-speech, 16 March 2016
2 Oxford University Centre for Business Taxation, 16 March 2016
3 ‘Oral statement to Parliament, Budget 2016: George Osborne’s speech’, https://www.gov.uk/government/speeches/budget-2016-george-osbornes-speech, 16 March 2016