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Updated: 17th December 2018

Although rumours the date of the 2018 Budget had been brought forward to avoid it falling on Halloween were quashed, nothing could be done to hide the fact that this was a Budget haunted by the spectre of our decision to leave the European Union. The last major planned fiscal event for the UK while still part of the EU, this Budget represented the end of an era for the country as we know it, and a set of policies with which to lead us into our uncertain future.

However, with a deal on Brexit to be agreed – or perhaps not – in little over 5 months’ time, some were taking the Budget with a pinch of salt, arguing that it would simply not be possible to implement measures announced by Chancellor Philip Hammond should the government fail to negotiate a favourable deal.

Hammond himself conceded that should Brexit talks collapse, next year’s Spring Statement would need to be upgraded to a full fiscal event to prepare for the change in situation. Under the unique circumstances, the 2018 Budget was always going to be one to remember, even if it may not be one where the policies ever get off the ground.

Armed with the famous red suitcase and a desire to reward the “strivers, the grafters and the carers,” what did Hammond have up his sleeve for small business owners when he took to the podium?

Slashing business rates

In what has been a tough year for the high street, with even retail giants showing they are not immune to the troubles plaguing Britain’s town and city centres, the Chancellor had some much-needed welcome news. He announced that a collective £900 million is to be saved by small business owners courtesy of a temporary slash of business rates for properties with a rateable value of £51,000 or less. Property which falls under this threshold will see its business rates reduced by a third for the next two years. This move is estimated to help 90% of small firms across England including independent shops, pubs, and restaurants, save an average of £8,000 a year.

Business rates have been a contentious issue for many years now, with the government under increasing pressure to do something to ease the strain on small businesses. While the impact this reduction will have on the high street is yet to be seen, a saving of £8,000 a year is going to act as a considerable lifeline to many and for some it could well be the difference between being able to trade on or having to close their doors for good.

However, the proposed measure will only last for two years; no doubt it is an appreciated gesture for the short-term, but does it go far enough?

Julie Palmer, partner at RBR Advisory, doesn’t think so: “The old rates system still needs to be adjusted for a modern trading environment, otherwise when the stimulus ends the old issues will return. Our Red Flag Alert has shown that the number of retailers in financial distress has increased by 1% since last year to more than 30,000 businesses. This trend needs to stop. If the government can update the existing system it can unravel one of the barriers for retail and potentially stop the rot of businesses moving away from the high street, and the great British tradition of great British retail can recover.”

Save our high street

Not content with tackling business rates, further help for the high street is to come in the form of a £675m fund which will allow local councils to transform their town centres. This pot of money is to be spent by individual councils on wide-ranging measures from redeveloping empty retail units into residential property, through to improving transport links in an effort to attract more trade to our beleaguered town centres.

Over the years, many people have been tempted away from the high street in favour of more convenient ways of shopping at out-of-town retail parks and online stores. Our changing shopping habits have undeniably impacted upon town centres across the country, in all probability altering them forever. Yet while Hammond’s £675m kitty is unlikely to result in us shunning our newly discovered ways of achieving retail therapy, a revitalisation of the high street whether this is for shopping, leisure or residential purposes, can only be a good thing.

HMRC stamps authority in insolvency matters

In a move no one predicted, it was announced that HMRC is to regain the secondary preferential creditor status in insolvency proceedings it lost in 2002. Slipped in within a raft of anti-tax avoidance measures, this news has not garnered the column inches it perhaps warrants.

Essentially this ruling places HMRC ahead of unsecured creditors – which include landlords, suppliers, and customers – in the queue for payment following the insolvent liquidation of a company. While this does not directly affect the company which is being liquidated, it does have an impact on its unsecured creditors which typically includes small businesses. The result is that less money will be available to unsecured creditors, as HMRC will be able to take their share first. As it currently stands, unsecured creditors already have a very slim chance of seeing the money they are owed back, in fact an average of just 4% of debts owed to unsecured creditors is recovered in this situations. In light of the change announced in the Budget, this already small pot may be set to shrink even further when this ruling is implemented in 2020.

It should not be forgotten that unsecured creditors also include banks and other lenders who have provided a line of credit to a company by way of credit cards, loans, and overdrafts. With unsecured creditors set to be pushed even further down the pecking order the perceived credit risk to these lenders is going to increase. This may have implications when it comes to banks’ willingness to lend on this basis particularly to small or newly established businesses without a solid trading history. As these types of enterprises typically have little in the way of assets to offer up as security for a loan, it is highly possible that banks either tighten up their lending criteria, request personal guarantees on a more frequent basis, or alternatively refuse to lend altogether. Without that vital injection of cash, some small companies could see their hopes of expansion quelled, while other entrepreneurs will be unable to develop their business to anything more than an idea.

"Our Red Flag Alert has shown that the number of retailers in financial distress has increased by 1% since last year to more than 30,000 businesses."

Increase to the Annual Investment Allowance

The Annual Investment Allowance (AIA) will be raised from £200,000 to £1million between 1 January 2019 and 31 December 2020. A form of tax relief, AIA can be utilised by businesses of all sizes to assist with the purchase of core business equipment such as plant, machinery, and vehicles. This move by the government not only encourages capital expenditure, but also allows businesses a more affordable way of improving their infrastructure and investing in their long-term future over the next two years.

Supporting start-ups, freezing fuel duty, and targeting tech giants: The best of the rest

Hopefully going some way to improve accessibility to funding, start-ups have been bolstered with the confirmation that the Start-Up Loans programme will continue to be funded until 2021. In a climate which sees small businesses face an uphill battle to obtain all-important funding from traditional high-street lenders, the government’s promise to assist with this tricky yet vital element of getting a business off the ground is pleasing.

Small business will also be pleased to hear a ninth consecutive freeze of fuel duty is to go ahead. The freeze is worth £1,000 a year to the average motorist, while van drivers are set to save £2,500. Along with fuel, duty will also be held on beer, cider and spirits which will come as a boost to bars, pubs and restaurants, although duty on wine and white cider will rise from April 2019.

For small firms looking to take on an apprentice, the amount they will have to contribute through the apprenticeship levy will be halved from its current figure of 10% to just 5% of the total training costs, with the government footing the remaining 95%.

Before the Budget there were whisperings that Entrepreneurs’ Relief may be substantially overhauled or scrapped entirely. Although this did not happen, the scheme did not escape completely unscathed. The qualifying period will be doubled from 12 months to 24 months and shareholders must be entitled to a minimum of 5% of the distributable profits and net assets of the company. These restrictions are designed to tighten up the rules and ensure the money is going to genuine entrepreneurs rather than those just playing the tax system, while also continuing to make Britain an attractive place to start a new business.

And finally, a popular measure is a new UK Digital Services Tax which is set to bring over £400m a year to the treasury. This tax will affect only those with in excess of £500million in global revenue, thereby clearly targeting established tech giants rather than start-ups. Based on the qualifying criteria it is estimated that only around 30 companies are likely to come under this ruling. Facebook, Google, and eBay are sure to be affected, while UK companies including Deliveroo and Just Eat may also be required to pay this levy depending on the level of their turnover and profits in 2020 when the ruling comes into force.

With this in mind, however, there are questions over whether this levy will even need to be implemented. Talks have been on-going about an international agreement on tax relating to digital activities, although the progress on these discussions has been slow. Many see Hammond’s announcement as a move borne out of frustration at these stalled talks. Although this initiative will not save smaller tech companies any money directly, knowing that their multinational rivals will be forced into paying their fair share is still something I’m sure we can all agree is worth celebrating.

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