Business rates is a type of tax that is calculated according to the rental value of the property that a business uses. With many businesses now based on the internet, critics have queried why a company should be taxed based on the physical space it uses.
There has been criticism of the existing structure of business rates for some time, with many arguing that it is outdated and should be abolished for smaller businesses altogether. However, the Chancellor announced today that business rates will not be abolished as the tax brings in £25bn a year.
Although business rates won’t be abolished, the Chancellor did unveil three measures to help those affected:
- No business losing small business rate relief will see their bill increase next year by more than £50 a month;
- 90% of local pubs will have a £1,000 discount on their business rates bill;
- A £300m fund for local councils to offer discretionary relief for hard-hit cases.
Whilst these measures will be welcomed, there will remain a general feeling of dissatisfaction among many business who, I suspect, will continue to feel frustrated that internet based businesses are getting a commercial advantage by owning less physical space.
From April 2016 the old system of tax credit on dividends was abolished and replaced with a new tax-free dividend allowance on the first £5,000 of your dividend income, no matter what non-dividend income you have. In addition, from April 2016, any dividend payments above £5,000 were taxed as follows:
- 5% on dividend income within the basic rate band
- 5% on dividend income within the higher rate band
- 1% on dividend income within the additional rate band
Today the Chancellor announced that the tax-free dividend allowance was reduced from £5,000 to £2,000 from 2018. The tax rates above the tax-free allowance will remain unchanged.
The measure is aimed at preventing the “unfair discrepancy” between the total tax paid by an employed worker and one who has set up his own company. However, I suspect that this announcement will be of particular frustration to many business owners who tend to use dividends to “top up” their salary payments. In addition, the constant changes to the system prevent business owners from properly planning ahead.
As set out in the Conservative election manifesto in 2015, the threshold at which workers pay income tax will be increased to £12,500 by 2020. The 40% higher tax rate also won’t apply until someone is earning at least £50,000.
NI contributions for the self-employed are to increase by 1% to 10% in April 2018, and by a further 1% to 11% in 2019.
Measures were announced today dealing with tax avoidance schemes, including the announcement of penalties for professionals selling tax avoidance schemes which are later found to be unlawful.
Terms and conditions
Plans to regulate complex terms and conditions were promised today, without any specifics being announced. The moves follow concerns that many consumers only “skim read” lengthy terms and conditions and some may fall into a subscription trap by inadvertently signing up for an automatic paid subscription service after a free trial has ended.
Whilst the Budget included some positive announcements, I suspect that the general feeling among businesses (in particular SMEs / owner managed businesses) is likely to be one of disappointment and frustration. In particular, the admission by the government that business rates will not be abolished, the changes to the dividend allowance and the increase in NI contributions for self-employed workers.
If you would like to discuss how any of the above announcements might affect your business then please don’t hesitate to get in touch with one of our commercial solicitors. Call us on 0845 287 0939 or complete our online contact form.