Following Rishi Sunak’s surprise resignation as the Chancellor of the Exchequer business finance experts at The Accountancy Partnership, look at what this means for the fortunes of small businesses in the UK.
The Chancellor is among the most senior members of parliament and Rishi Sunak gained profile during the pandemic as the person who led the financial support for businesses and employees.
These pandemic relief schemes have left the public finances in £450 billion of debt, and the Chancellor’s job is now to recoup that over the coming years. However, there are also a number of new challenges facing businesses including inflation, supply chain crises and staffing shortages. As there are 5.6 million small businesses in the UK and they make up 99.9% of the business population, it is essential that they are supported by the government during these turbulent times.
Will this affect the repayment of any Covid support schemes?
No, those businesses that made use of the various support schemes during the pandemic are still required to pay back the support during the agreed timescales.
Will there be any filing or repayment deadline extensions as a result?
No, despite the chancellor being the government’s chief financial minister, the rest of the Treasury stays the same. Any money owed by small businesses to the government is still repayable to the timings already stipulated.
Will we have an emergency budget?
There is a speech on the economy and increased cost-of-living and cost-of-business planned for next week – w/c 11 July – however, this is not the budget, that is set to take place in late October or early November and is the annual autumn Budget.
The speech scheduled for next week will now be delivered by the new Chancellor, Nadhim Zahawi. The contents of the speech have not yet been finalised and might well change as the new chancellor may have a different approach to overcoming inflation than Rishi Sunak.
Speculated to be in the speech is a long-term package for tackling the inflation crisis and new measures to support businesses and households following the previous energy bill relief.
It is believed that plans will include proposals to insulate homes and invest in green energy with a phasing-out of gas boilers.
It should also be noted that there was no emergency Budget when Rishi Sunak’s predecessor and previous Chancellor, Sajid Javid, resigned in February 2020. However, an emergency budget can be called at any time, and it could be used to generate favour for the new Chancellor Nadhim Zahawi.
Will corporation tax increase?
Currently, this is unknown. Rishi Sunak had planned to raise corporation tax to 25% from 19% in spring 2023 for higher-earning businesses.
If a business is registered as a limited company, it must pay corporation tax on its profits from trading and the sale of investments or assets. Limited companies must register for corporation tax within three months of starting to trade as a limited company.
Will the National Insurance threshold still increase?
Yes, the National Insurance (NI) threshold increase comes into effect this week on 6 July, moving from £9,880 to £12,570, resulting in an upturn in take-home pay for millions of people.
Following the change coming into effect, SMEs must update their accounting practices in line with the new legislation, in order to avoid paying an unnecessary higher rate of tax.
Lauren Harvey, Assistant Accounts Manager at The Accountancy Partnership, said, “The change to the National Insurance Threshold is a positive step for SMEs and entrepreneurs and will bring a genuine uplift to the pay packets of many if the correct accounting changes are made. It also allows self-employed people to keep more of their hard-earned income before NI is automatically deducted.
“Entrepreneurs and self-employed people must update the way that they pay themselves in order to take advantage of the change, this won’t happen automatically. Currently, the most tax-efficient way for directors working through a limited company to maximise their earnings is through a blend of salary and dividends, and this NI change means the blend should be updated to reflect the greater threshold and tax-free allowance.
“The change also brings a simplification to the tax system – it aligns the personal allowance for income tax and the threshold for the Lower Profits Limit (LPL), both now £12,570. Because the threshold change happens during a tax year, rather than at the start, this year sees an ‘annualised’ amount of £11,908. It’s also worth noting that self-employed people will no longer pay Class 2 NICs on profits between the LPL and the Small Profits Threshold (£6,725) providing a small saving for as many as 500,000 entrepreneurs.
“In addition, self-employed people should consider the potential impact on their state pension entitlement. Whilst ten years of National Insurance Contributions qualifies as sufficient, they must have paid at least 35 years of contributions to receive the full weekly rate. The new threshold protects SME owners not paying Class 2 NI on profits by continuing to build NI credits, but it could result in a different outcome for those below this bracket. It is therefore crucial that small business owners check whether they’re eligible for voluntary pension contributions to enhance their future security.
Will the super deduction scheme continue?
Rishi Sunak was expected to share further details on his £29 billion super-deduction scheme which was launched last year, in April 2021. The planned scheme gives firms a 130% relief on their tax bills for qualifying investments until April 2023.
However, research found that only one in eight businesses are currently aware of the Super Deduction Tax Break. The scheme allows businesses to cut taxes by up to 25p per £1. The idea behind the initiative was to give businesses an incentive to make extra investments in equipment, machinery and tools, in an effort to improve the economic growth that deteriorated during the pandemic.
Will the new chancellor cut fuel duty?
The government announced a temporary cut to fuel duty on petrol and diesel by 5p per litre for 12 months, on the 23 March 2022. However, as fuel prices have continued to rise at record rates the Chancellor is under further pressure to cut duty further to help businesses that rely on transport avoid even higher costs of operating.
What advice would you give small businesses?
Following the cabinet reshuffle and a number of ministers stepping down there will no doubt be lots of speculation. Our advice to businesses is to continue as they have been doing in the face of adversity and wait for further facts to be announced from official channels before making decisions.