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July Budget 2015 for Startups and SMEs
by Startacus Admin
As though a single budget in the space of a year wasn’t exciting enough, the recent victory of the Conservative party in May’s general election has led Chancellor George Osborne to deliver an emergency budget- the first Conservative-only budget for 2 decades.
As you’d expect we were listening intently throughout, tweeting along the way, and trying to decipher what significant impact, if indeed any, the announcements will have on SMEs, startups, and enterprise more generally.
Unlike during the last budget, the back benchers behaved in a much more civilised manner, and we were actually able to hear some of the things that the Chancellor was saying. A very uncharacteristic reaction for a very uncharacteristic budget.
A Barnstorming Budget
Of all such moments we have ever reported on, this Budget really does stand out against the usual drudgery of minute policy amendments and fractional fluctuations in tax. This is because unlike in recent budgets the Chancellor seemed to be (rightly or wrongly) determinedly and unapologetically pushing the economy in a single direction- saying loudly and clearly to the British people and the businesses that operate here “I am going to cut this, I am going to reform that - like it or lump it”.
Of course only time will tell if this self-assured and seemingly apathetic approach manages to grow an economy which delivers for all the people of this country.
There were 2 major announcements that carry significant potential impacts for businesses, big and small; a further reduction of the rate of corporation tax, and the creation of a national living wage. Such is the potential impact of these and other announcements that some have branded it as a ‘Barnstorming Budget’.
Corporation tax is the tax that limited companies are required to pay on their profits. Under the last Labour government this stood at 25% and over the past 5 years it has been reduced to 20%. Now George Osborne has announced that it will be lowered further to 19% by 2017, and 18% by 2020. For business owners this is good news because lower taxes means more money stays within the company… simple. It also acts as an incentive to larger businesses who often see a country’s rate of corporation tax as a key determining factor when deciding whether to operate within a particular market.
The Living wage is something that you have probably heard much about over the course of the past few years, but this is the first time that the Chancellor has announced government's intention to legislate in relation to it. From April 2015 a living wage of £7.20 will replace the current national minimum wage of £6.50, with the figure rising to over £9 by 2020. This is pretty good news for workers, but is probably less welcomed by bootstrapped businesses, struggling to make payroll at the end of the month. However many economists, and other clever financial folks are suggesting that once changes to national insurance, corporation tax, inflation, and growth in the economy are brought into the equation, most businesses will see very little impact from the introduction of a national living wage.
Those were the 2 announcements that really stood out in relation to startups and SMEs, however there were others with the potential to impact on the world of enterprise;
Business investment has increased by over 33% in the past 5 years and is expected to rise further - This is partly due to the quite successful SEIS and EIS tax incentives for investors.
Working-age benefits are to be frozen for four years - including tax credits and local housing allowance. If you are operating as a sole trader, are self-employed, or have people working for you, this announcement certainly affects you. The freeze on working age benefits means that people in low paid work will effectively lose out unless their wages rise in accordance with the freeze being brought in. This will potentially have a disproportionate impact on small businesses and startups, who may be less equipped to cope with a potential increase in costs.
Research and Development tax allowance to increase to £200,000. This is a relief given to businesses for money spent by a trader on research and development. This allowance was previously £20,000, so this is excellent news for many businesses, including startups who are working in fast developing and competitive industries.
With the first budget of the new government now out of the way we can say one thing with absolute certainty; no matter what the next 5 years will bring, boredom certainly won't be one of them!
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