Autumn Budget 2017: Modest easing of pressure for UK’s small businesses

22 November 2017

No VAT threshold cut for country’s 5.5 million small companies.

The UK’s 5.5 million small businesses received some small relief from Philip Hammond in this afternoon’s Budget. 

There had been speculation that the VAT registration threshold could be lowered from its present level of £85,000 of turnover - "by far the highest in the OECD" – pulling more small businesses into the VAT system.

But the chancellor made a show of leaving it there for the next two years; although concerns had been voiced about the high VAT level amounting to a disincentive for businesses to grow, he argued that it’s preferable to keep "the  majority of small businesses out of VAT altogether". 

However, he announced plans to "consult on whether its design could better incentivise growth". 

"Freezing the threshold at £85,000 a year for the next two years will relieve the burden of new owner-managed businesses getting established in the market. This is great news for new businesses," said Esther Wood, partner at Blick Rothenberg.

However, there is a downside in that previously the threshold had increased in line with inflation. "This departure will result in more small businesses having to register for VAT," added Alan Pearce, VAT partner at Blick Rothenberg.

In addition to the VAT change, the chancellor announced that business rates will be revalued more frequently to reduce the size of changes in valuations. 

Rates will also be increased annually in line with consumer prices index (CPI), rather than the higher retail prices index (RPI) from April, making them generally lower and fairer. The move is calculated to be worth £2.3 billion to businesses over the coming five years. 

"The move from RPI to CPI for business rates indexation will reduce rates bills for local shops. However, the Government needs to ensure that existing reliefs are getting through to local shops that need it; currently  81 councils still haven’t set up schemes to distribute discretionary rate relief despite this being announced and funded in the March 2017 budget," commented James Lowman, chief executive of the Association of Convenience Stores. 

Karen Barrett, chief executive of unbiased, flagged up Hammond’s concessions to small business as "something to smile about".

This article was written for our sister magazine Money Observer.

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