“Britain is open for business”: The impact of the July 2015 Budget on North East businesses
As George Osborne delivers the first Conservative Budget in almost 20 years, the outlook is surprisingly positive for North East businesses argues Square One Law’s managing partner, Alan Fletcher.
Amidst headlines of welfare cuts and a national living wage there was some good news for UK businesses, mostly surrounding tax measures to be introduced over the coming months and years.
George Osborne unexpectedly announced the gradual reduction of Corporate Tax to 19% in 2019 and then 18% in 2020. It has been suggested that this will help to offset any rising costs associated with the increase in the national minimum wage which is set to reach £9 per hour by 2020.
Also beneficial to small to medium businesses, and arguably the measure to have the greatest impact on North East operations is the purportedly permanent setting of the Enhanced Annual Investment Allowances at £200,000 a year. This should bring some stability to those wishing to invest in large scale projects as they can plan ahead without worrying about annual changes to the policy.
The announced increase in national Insurance employment allowance for small firms, which will grow by 50% to £3,000 from 2016, is to be welcomed and the freeze on fuel prices and commitment to road improvements will also significantly benefit smaller business that rely on transport links.
Owner managed businesses will however need to factor in the new tax on dividends which will apply from 6 April 2016. Although a £5k tax free dividend allowance is being introduced, this will be offset by the abolition of the associated tax credit and the increase in rates of tax by 7.5% on dividends, so whether extracting profits by way of dividend together with the timing of dividend payments needs to be carefully considered on a case by case basis.
When it comes to managing personal finances there were a couple of important points to note. Following on from April’s pension reforms there was a further review of the taxation of pensions. While no firm announcement was made, Osborne suggested a move towards taxable contributions and tax free receipts which could have a significant impact on the savings industry across the UK.
Those with buy to let mortgages will also face increased restrictions as mortgage interest relief has reduced to 20% for buy to let properties. This will be of particular interest to those that have invested in buy to let as an alternative to a traditional pension plan and coming on top of the well trailed restrictions placed on the pension contributions for higher rate tax payers and the other pension reforms makes it more important than ever that those saving towards their retirement regularly review their strategy.
Whilst London property prices caused much of the political pressure which has resulted in the new inheritance tax changes being announced these are to be welcomed and will benefit a number of families in this region.
At a regional level, it was clear from the Greater Manchester emphasis in the Northern Powerhouse elements of Osborne’s speech that the North East is at risk of falling behind other regions if we cannot determine how this region’s devolution model should work sooner rather than later.
Overall the budget was largely good news for local businesses although, as always, the tax implications of personal and corporate investments should be carefully considered and professional advice sought where appropriate.