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Budget 2016: London and South East SMEs laud business rates reform

Today’s budget announcement by the Chancellor George Osborne has been lauded by business leaders and SMEs across London and the South East as good news for small businesses.

A raft of measures, including the raising of the threshold for small business rate relief and moves to clamp down on multinationals doding tax, have all been viewed as attempts to nurture and support the UK’s thriving small and medium businesses.

In particular, Bdaily’s pre-Budget coverage was teeming with South East and London business leaders calling for greater recognition of the growing role of small and medium enterprise to the UK economy, and the Chancellor appears to have heeded their calls.

Business rates

Reaction from business leaders has focused on one of the headline Budget announcements from Osborne, the raising of the threshold for small business rate relief. As Tomer Guriel (pictured), Chief Executive Officer of FinTech firm EZBob explains, the move will provide a significant boost to thousands of businesses.

He said: “Today’s Budget announcement is good news for small businesses. The annual threshold for small business rate relief will be more than doubled from £6,000 to £15,000 in April 2017, meaning that 600,000 small businesses will pay nothing in business rates and 250,000 will see them fall.

“This combined with a further reduction in corporation tax and a ‘levelling of the playing field’ for large and small businesses with a new tax crackdown on multinationals, will significantly alleviate pressure on small businesses.”

However, Tomer believes the government could go further in reducing the stranglehold that traditional banks have over SME lending by promoting the benefits of alternative lending. This, he believes, will ‘pave the way for a productive environment for entrepreneurs, a productive workforce and a productive economy’.

He added: “Going forward it would be good to see the government take this further and help those same small businesses access the additional working capital they need to accelerate their growth plans.

“Financial institutions, industry bodies and the government all have a role to play in ensuring businesses know the funding options available to them and that traditional banks are no longer the default.”

Similarly, Robert Gordon, Chief Executive Officer at Hitachi Capital, was impressed with the business rate reforms and believe they will help reduce red tape for SMEs and give ‘crucial breathing space’ for them to invest in future growth.

He commented: “We welcome these changes to simplify the outdated business rates system, which currently places a huge burden on the UK’s 5.4 million SMEs - the backbone of our economy.

“Reducing red tape and giving businesses clarity over the amount of tax they have to pay is fundamental at a time when many are struggling with an overly complex regulatory environment.”

SME finance regulation

Despite the chorus of support for the small business rates reforms, some have commented that the Chancellor did not go far enough in protecting and promoting the UK’s small and medium size companies.

One such critic is James Sherwin-Smith (pictured), Chief Executive Officer at SME overdraft provider Growth Street, who believes George Osborne has missed an opportunity to tighten up the UK’s unregulated SME finance market.

He said: “At present, commercial finance falls outside the scope of the Financial Conduct Authority (FCA) and is unregulated, meaning there is no requirement for providers to disclose the Annual Percentage Rate (APR) on any commercial finance product.

“Promotional materials for consumer credit products are required to carry an APR. However, there is no such protection for businesses, allowing providers to employ opaque tariff charges, hiding fees in complex terms and conditions, and making it difficult for firms to compare the cost of finance.”

He believes such opaque and complex lending practices prevent small businesses from comparing finance options, making it difficult for them to get the best deal and hampering their growth as a result.

He added: “Until it is made mandatory that, by law, all providers of commercial finance would carry clear and accurate details of an Annual Percentage Rate on their financial promotions to SMEs, in all forms that this is required, businesses will have no means of comparing finance options, and will continue to pay far more than they should, with a detrimental impact on profitability, growth and employment.

“Our recommendation is a positive and implementable step to improve the SME finance market in the UK; we are calling for the Chancellor to show his support for small businesses and act.”

Tax evasion and personal service companies

Following the tsunami of criticism the government faced in light of the ‘sweetheart tax deal’ it agreed with Google, the Chancellor made sure that one of the key tenets of this Budget was a commitment to clamp down further on large corporations dodging tax.

And while this is good news for small businesses who are put at a disadvantage due to the ability of large multinationals to adroitly dodge their tax commitments, Julia Kermode (pictured) of the Freelancer & Contractor Services Association struck a note of caution.

She believes that the Budget represents an attack on freelancers and contractors, taking particular aim at the Chancellor’s vow to clamp down on Personal Service Companies, which are often used to avoid income tax and national insurance contributions.

Julia commented: “Whilst the Chancellor spoke clearly about his mission to back small businesses he is determined to penalise freelancers and contractors by clamping down on Personal Service Companies, assuming that those working in this way are tax evaders and avoiders.

“By definition, freelancers and contractors are not employees, but are procured to provide services to a company and are not part of an organisation’s payroll.”

“The budget proposes that, from April 2017, the public sector body engaging an off-payroll worker, or the recruiting agency, will be responsible for ensuring that the worker is paying the correct tax.

“The change essentially moves responsibility for tax from the individual to the hirer/agency, however determining IR35 status is complex and the proposal will further increase the regulatory burden on agencies and public sector bodies.”

Julia warns that this rather dry detail buried within Osborne’s announcements will have a very real impact on organisation’s who utilise freelancers and contractors, including big projects like HS3 and Crossrail 2, and calls on the government to recognise the importance of freelancers.

She concluded: “We must redress the balance and change the perception that all temporary workers are avoiding paying tax. Many organisations rely on contractors for support as they enable businesses to be agile and scale up or down according to demand.

“Individuals working for themselves are in a very different position to an employee - they have no job security or benefits, and are taking significant risk in choosing to work this way.

“The Chancellor needs to recognise the important role that they are playing in helping to ‘build the strongest economy in the world’ that he claims to be so proud of.”