It could have been worse: what the Budget really means for business owners

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The recent Budget wasn’t as bad as some feared, but S&W's recent survey shows last year’s Budget continues to bite. For business owners now, no news would be good news.

It could have been worse. That’s the verdict from most businesses following months of speculation, fears and rumours in the run-up to last month’s Budget. So much had leaked, and so many policies were trailed, in the preceding weeks that it barely mattered that the Office for Budget Responsibility accidentally published its report early.

As it happened, though, the big news for many business owners at the Budget was a small win: a change to the business property relief (BPR) and agricultural property relief (APR) reforms announced at the last Budget so that unused relief can transfer to surviving spouses or civil partners. At the very least, that’s saved many business owners a lot of hassle transferring ownership of shares between spouses or arranging trusts.

It’s pretty cold comfort, though.

For a start, the government has left it until now to announce what’s really only a sensible alignment of APR and BPR with other inheritance tax allowances. Many had already begun the process of reorganising their affairs. More significantly, the reductions in relief are still going ahead from April, limiting full relief to the first £1 million (or £2 million for a couple), with only half the relief above this: an effective IHT rate of 20%.

Many still face a significant tax charge when the surviving spouse dies. Where that must be met with the business assets, the cash requirements are substantial. There’s corporation tax on the profits and dividend tax (increased at the Budget) when they’re taken out. For a £1 million IHT bill, it could cost the business more than double that.

And it’s not just businesses and their owners that are paying the price. 

Working for no one

S&W’s recent Business Owners Sentiment Survey (The BOSS) polled 500 owners of businesses with over £5 million in turnover. It found businesses nationwide cutting staff and freezing pay, but particularly in Yorkshire and the Humber. Owners here were much more likely to say redundancies were very or somewhat likely in their business in the next twelve months: 58%, compared to 38% nationally. Likewise for hiring freezes – 58%, again, compared with 39% across the UK.

Both were the highest for any region.

The reasons for this are no mystery. As the survey makes clear, the national insurance changes in the last Budget continue to bite. So, too, do the hikes in the minimum wage, particularly for younger workers. In just two years, the costs of employing someone aged between 18 and 21 on the minimum wage have jumped by about a quarter.

Yorkshire, with a heavy manufacturing base and a lot of lower-paid employees, has been particularly hard hit. With business owners potentially having to also set aside large cash sums for a future IHT bill, it’s not surprising that many are looking at cutting their workforces. The BOSS report shows that many business owners are considering reducing headcounts specifically to put funds aside to pay a future IHT bill. 

The way ahead

The Budget hasn’t helped here. It didn’t add to NI costs, but it didn’t cut them either, and the spousal transfer of APR and BPR is little more than a sensible simplification. The minimum wage increased again, albeit less than the previous year.

Some older business owners are, sadly, concluding that they’ve had enough and wrapping up. For those that continue, though, it seems it’s up to them to help themselves: cutting costs where they can, optimising operations, making the best use of new technology and automation, and accessing available allowances and reliefs; the UK’s R&D reliefs and capital allowances are still fairly generous.

They may also hope for at least one thing in their favour: a period of stability. The extra revenue the Budget raised (much of it through the frozen income tax thresholds) has increased the Chancellor's buffer, even if not as much as she would like. There’s at least a good chance she won’t need to come back for more next year. The government has so far kept to its pledge to keep corporation tax at the current level. We may now have got the nasty surprises out of the way.

It’s not much, but after months of uncertainty and the myriad of tax changes proposed, we can now see the way ahead. The region's business owners can now start making their plans for the new year and beyond. For all the challenges, I wouldn’t bet against them.

To discuss how the Budget could impact your business or personal finances, and how you can put both in the best shape for success, contact Stuart Wright, Partner in S&W's Harrogate office: stuart.wright@swgroup.com. To find out more, visit the website.