The Chancellor recently announced two significant changes in the March Budget that the self employed and small businesses can expect to feel the impact of.
These changes concern the amount of National Insurance the self employed will pay and the amount small businesses can expect to pay for their business rates.
We take a closer look at how these budget highlights might affect your business.
All UK businesses that use a property such as shops, offices and factories or other business locations pay a business tax. These rates are often a significant outgoing for many small businesses after the costs of hiring staff and paying rent. How much the rates cost a firm depends on the value of the real estate they use.
Every 5 years, the Valuation Office Agency (VOA) adjusts the rateable value of business properties to keep business rates in line with changes to the property market.
2017 changes are in response to the government’s first business rate re-valuation of commercial property values since 2010. In revaluation all properties are given a new rateable value but depending upon where you work a change in rateable value need not necessarily make a radical impact on your bill.
However, many firms face increased business rates bills by more than £1,000 per year and business groups have called for a hardship fund to assist small businesses with meeting this obligation, or to be made exempt entirely from paying the rate. The Prime Minister had said in February 2017 that many businesses will not be affected by the 2017 rates revaluation and those that were ‘particularly adversely affected’ deserved assistance.
The government has published new ‘rateable values’ of business properties in England and Wales, which will change the amount thousands of firms will pay for their business rates. Because property values in London and the South East have increased significantly in recent years, business rates in the region will be much higher, the inverse being true where property prices have fallen.
There will be a cap on how much business rate bills can rise or fall in forthcoming years to ease the transition for firms, so the rates increases don’t impact businesses too dramatically.
The government is allocating £435m to firms affected by increases in 2017 business rates, including a £300m hardship fund for the worst hit. Meanwhile, business rates for those small businesses that will lose existing relief will be capped at £50 a month.
You are entitled to small business rate relief if your property’s rateable value is less than £12,000 currently, or £15,000 from April 2017. If your business only uses one property you are more likely to be eligible for relief, however, it’s possible to get relief if you do use more than one property then you can keep getting the existing relief on your main property for the next 12 months.
After a year you can continue to benefit from the relief on your main property if none of your other properties have a rateable value above £2,600, or £2,900 from the new 2017 tax year, and the total rateable value of all your properties is less than £20,000 - £28,000 if you are in London.
It’s important to supply the VOA with up-to-date rental evidence to ensure an accurate revaluation of your business property. If business rates for your property adjust by a certain amount, then transitional relief means that the changes are phased in gradually.
The other big budget news for businesses is the change to the National Insurance contributions paid by the self employed.
Everyone who is employed pays National Insurance contributions. These contributions go into a fund that pays for the state pension and some other benefits as well as helping to pay for the NHS. If you are employed by an employer then National Insurance Contributions are automatically deducted with your pay each month.
Self employed workers have historically paid a lower rate of National Insurance than employed workers, in part because as a self-employed worker they have a lesser entitlement to benefits like pensions. Now this disparity has been removed the government has sought to increase the amount of National Insurance the self employed pay. Criticisms are that the self employed tend to benefit less from things that those in employment enjoy such as paid holiday and sickness leave.
The self employed who make a profit of more than £5,965 annually pay a separate class 2 National Insurance contribution, which is due to be scrapped from April 2018.
Hammond also revealed that the main rate of Class 4 National Insurance contributions for the self-employed will increase from 9% to 10% in April 2018, and 11% in April 2019.
Forthcoming National Insurance changes will apply to the self employed with earnings between £8,060 and £43,000, averaging a weekly cost increase of 60p per week to those affected. The increase is anticipated to raise £145m a year by 2021/22.
The changes also mean that 1.6 million self employed workers could find they are paying £240 more a year on National Insurance rates, although ministers say those earning below £16,250 a year will pay less.
Plans to increase National Insurance rates for self-employed people have been dropped. The government will now no longer proceed with the increases.