Let me guess, your Wiltshire or Swindon business is your pension? We hear it all the time. We’re told that all the hard work will pay off and one day you’ll cash in and settle into retirement. But what if you don’t cash in?

Our Love or Money study revealed that over a third of business owners don’t have a pension. Maybe you’re one of them? We understand. You get so emotionally invested in your company that you pour your heart, soul and money into making it work. But there’s a difference between diligence and recklessness. Yes, you need to look after your business, but you also need to look after yourself.

In this latest article in our Love or Money series we investigate the financial gamble business owners in Swindon, Wiltshire and across the UK are playing with their futures.

Are you a gambler?

To steal a line from Radiohead, the Autumn Statement was a Budget with ‘no alarm and no surprises’.

We are increasingly familiar with the government’s preference for ‘leaking’ Budget measures in advance, and for advance warnings on significant, future changes to the tax system, therefore Philip Hammond did not have much to say, from a tax perspective at least, that should have come as a surprise.

I have selected a few of the points that, in my opinion, have the greatest bearing on businesses.

  1. Only one bite at the cherry

We had become used to the annual round of Spring and Autumn Budgets, and the disruption that this can bring to attempts achieve stability both in spending patterns and in the determination of likely tax liabilities.

The Chancellor has announced that, after Spring 2017, we will move to a single, Autumn Budget. Whilst this may seem relatively innocuous, any measures introduced that reduce the likelihood of last minute changes to tax systems must be a good thing.

If we have the luxury of being able to plan with some degree of certainty, business confidence and stability hopefully follow.

  1. Employment costs

Employers have already seen an increase in employment costs following the introduction of Pension Auto- Enrolment.

The Chancellor has added two further measures that will again affect employers:

  • an increase in the National Minimum Wage (to £7.50)
  • a decrease in the threshold above which an employer makes National Insurance contributions for an employee (£157 per week)

These new measures will further add to employment costs. With concerns that inflationary pressures may create the need for basic wage increases in order to avoid employees suffering real reductions in spending power, employers may be concerned that employment cost are set to escalate.

  1. Beware the tax efficient

There is, in my opinion, a fundamental flaw in the logic of the tax legislators – we are not all equal! A business owner is unlikely to have the same tax profile as an employee, however we are being told that, in essence, they should be identical.

This is fundamentally flawed – there must be significant incentives for those who are prepared to accept risk in order to generate profit and economic growth, however the government continues to reduce the opportunities available for entrepreneurs to structure their affairs tax efficiently.

Today the Chancellor announced:

  • salary sacrifice schemes will not be available for most types of benefit (pension, childcare, cycle to work and low-emission car schemes will remain unaffected)
  • the government will seek to address the differential in tax between incorporated and unincorporated businesses

My concern is that, if we make it less attractive to act in an entrepreneurial manner, we reduce the likelihood that we will achieve the economic growth necessary to bring the budget back in to balance.

Summary

Global economic uncertainty, coupled with the potential impact of Brexit, has lead to forecast reductions in the likely scale of economic growth in the UK, the consequence of which is that we are likely to remain in budget deficit for the next few years.

This government is unable, or unwilling, to commit to significant spending without it being funded by savings or other fiscal measures.

As I often say to clients ‘it is difficult to shrink your way to success’. The Chancellor appears to recognise this but, in uncertain times, cannot risk significantly increasing tax burdens as this might further depress economic activity.

Therefore, yet again, the Budget pronouncements have been relatively neutral both in terms of infrastructure spending and tax measures. I suspect I will be saying the same in the Spring.

Philip Hammond kicked the Autumn Statement into touch by delivering his first and last Autumn Statement.  He maintained that Britain was ‘Open for Business’ by focusing on productivity and prioritising high value investment into infrastructure & innovation. This will help Britain maintain it’s position as the fastest growing major economy in the world.

But what do today’s announcements mean for you and your business?

 

Business Costs

Fuel Duty

It was announced that the Fuel Duty rise for next year will be cancelled for the seventh year in a row.  This should be good news for businesses with high fuel costs such as transport & haulage companies.

Capital Allowances on New Technologies

In addition to the reduced cost of motoring for conventional vehicles, the Chancellor announced beneficial changes to the Capital Allowances regime on items such as electric cars.  The Government reinforced its support for green motoring by excluding these vehicles from the changes to salary sacrifice schemes for employees.

Insurance Premium Tax

Today’s announcement increases this stealth tax from 10% to 12% from 1st June 2017. This increases the cost of running your business and making sure it’s appropriately covered. 

VAT Flat Rate Scheme

A new 16.5% rate comes into force 1st April 2017 for businesses with limited costs, such as consultants, professional service firms and contractors.  This means that these businesses overall cost burden will increase.

Corporation Tax

The Chancellor committed to follow the business tax roadmap previously announced by George Osborne by confirming Corporation Tax would continue to fall to 17% by 2020.  This gives UK SMEs a degree of certainty and confidence over the next few years.  

It also maintains the UK position as the lowest Corporation tax rate in the EU, other than Ireland and helps maintain the attractiveness of Britain as a low tax economy.  This is important in the context of the USA proposals to reduce their Corporation Tax from 35% to 15%.  Once Britain has exited the EU, there may be more flexibility to reduce Corporation tax further to maintain UK competitiveness.

 

Employing People

Salary Sacrifice

Salary sacrifice options will be restricted to Government approved expenses such as Pensions, Childcare, Cycle to Work Scheme and Ultra Low Emission Cars.  This gives business owners less flexibility in remunerating and incentivising key employees in order to retain them and will likely result in businesses having to pay higher salaries to staff in order for them to maintain their standard of living.

National Living Wage

From April next year, the National Living Wage will rise from £7.20 to £7.50.  The Chancellor has once again increased employment costs for SME businesses. 

 

National Insurance

Today the Chancellor announced an alignment of National Insurance Contributions for both employers and employees.  From April 2017 the NI threshold will be £157 per week.  There will be no cost to employees but this again means more costs for businesses of £7.18 per annum per employee. 

 

Funding

Research & Development

Funding for Research & Development will be increased by an extra £2bn up to 2021.  This funding will be available for both universities and businesses and will apply to projects such as robotics, artificial intelligence and industrial bio technology.

To ensure the UK tax system is strongly pro innovation, the Government will also review the tax environment for R & D to look at ways to build on the introduction of the above the line R & D tax credits.  Our experience from our client base is that this is a very valuable relief for innovative small businesses and any improvement in this is good news for businesses.

Exporting

The Chancellor announced doubling support for exporting as the government looks to make it easier for British companies to trade abroad. This extends the export credit guarantee and increases the pre-approved currencies for which UK Export Finance offers support from 10 to 40.   It looks like the Chancellor is hoping more economic support will get businesses shipping around the world. Although these are positive changes, business owners still need to be aware of how to access this support.

 

With uncertainty around Brexit, it seems that the Chancellor is trying to build in maximum flexibility to be in a position to react to anything that occurs from the uncertainty that this presents.  He seems to have delivered a ‘Steady as You Go’ statement and with his announcement of future Autumn Budgets and less changes in the new Spring statement, Philip Hammond seems to be doing less ‘tinkering’ to enable businesses to get on with doing business.

An area where a considerable number of companies in Swindon, Wiltshire and the surrounding areas are missing out is Research and Development (‘R & D’). There are potentially significant tax savings available if R&D expenditure is identified and appropriate claims made to HM Revenue & Customs.

In many cases, an additional uplift on tax-allowable R & D expenditure of 125% (130% from 1 April 2015) can be claimed.

However, R&D is not confined to the laboratory and people in white coats. The key word is ‘development’. R&D often occurs as part of the work you already perform on a day to day basis.

Here at Haines Watts Swindon, Wiltshire, we’ve submitted significant claims for companies saving corporation tax and also producing back dated claims in order to generate cash repayments.

We have secured cash refunds in the region of £50 to £70k per annum in a number of cases and total refunds of up to £230k per annum in others!

So why has your accountant not mentioned this before?

This relief is not automatically given by HM Revenue & Customs and a report is required in order to gain the relief. Many accountants have stayed clear of this significant relief due to a lack of expertise in this field or they have engaged external consultants to deal with it.

What costs can qualify?

•    Staff costs
•    Consumables
•    Subcontractor payments
•    Overheads

Example R&D Sectors:

•    Manufacturing
•    Architecture
•    Engineering and Electronics
•    Injection Moulding
•    Software
•    Offshore
•    Life Sciences

Expertise & Experience

In the past 12 months alone the Haines Watts specialist R&D team have successfully claimed in excess of £20million additional tax deductions for clients which has resulted in more than £4million in cash being refunded by HMRC. We are proud to say we have a 100% success rate on our claims and operate under a contingent fee arrangement.

Contact

Please contact one of our tax specialists Mike Lloyd (This email address is being protected from spambots. You need JavaScript enabled to view it.) or Martin Gurney  (This email address is being protected from spambots. You need JavaScript enabled to view it.) at Haines Watts Swindon, Wiltshire if you would like further information or a no obligation free meeting. Telephone 01793 533838.