The South West-based accountancy firm Milsted Langdon warns that measures announced by Chancellor Jeremy Hunt in the Autumn Statement could hit small business cash flows before they feel the benefit of new measures.
In the wake of falling inflation – reaching 4.6 per cent in November 2023 from 10.1 per cent in January – and anxiety around high interest rates, the Chancellor outlined his “Autumn Statement for growth”.
Reviewing the Government’s new fiscal policies, Milsted Langdon says that, while businesses will benefit in the long term, it may cost some significantly.
Whilst very welcome for employees, the rise in the National Living Wage (NLW) will bring increasing labour costs for some businesses who employ lower paid workers with a 9.8 per cent rise, to £11.44 per hour. This has been compounded by the extension of the NLW to 21 and 22-year-olds for the first time.
Rising wages will also carry a higher Employers National Insurance liability, despite a reduction of Employee National Insurance to 10 per cent to the benefit of workers.
Small and medium-sized enterprises (SMEs) are likely to be hit hardest as they often lack the profit margins and financial buffers of larger firms.
Rob Chedzoy, Tax Partner at Milsted Langdon, said: “Despite a major emphasis on leveraging the current economic climate and creating opportunities for small businesses, policies within the Autumn Statement will place a heavy burden on SMEs in the coming months.
“Working people will be rightly supported through higher costs of living with rising wages and reduced NI contributions, but businesses seem poised to pay the price, particularly with no employers NIC reductions in sight.
“This is particularly the case for sectors that rely heavily on workers who are paid at NLW levels, or those that already operate with low profit margins.”
However, despite these extra employment costs for SMEs, the Chancellor’s 110 measures for the coming year may yet bolster small businesses through a long-term commitment to growth, says Milsted Langdon.
The extension of business rates discounts for retail, hospitality and leisure business will be welcomed, as will measures which continue to improve payment terms for smaller businesses.
The Chancellor announced an indefinite extension of ‘Full Expensing’ allowing capital-reliant businesses to claim a deduction from taxable profits of up to 100 per cent of their expenditure on qualifying plant and machinery.
“This extension will be hugely beneficial for large capital-intensive businesses and manufacturers but will be of little direct help for most smaller owner managed businesses, who can already claim a full tax break under the Annual Investment Allowance and will see no change in their overall tax position”, said Rob.
In addition to support for internal investment, high-growth sectors including technology, sustainable energy and manufacturing, will benefit from significant investment from the Treasury, with £975 million being made available for the automotive sector, £520 million for life sciences and £960 million for clean energy manufacturing.
The UK’s self-employed businesses are also benefitting from the Chancellor’s announcements, with the unexpected abolition of Class 2 National Insurance – and a slashed rate of Class 4 NI contributions at eight per cent.
Rob said: “Many business owners will have mixed feelings after the Autumn Statement. While the Chancellor placed heavy emphasis on securing investment and growth, SMEs may not feel the benefit for a while yet.
Several possible changes around Inheritance Tax and Stamp Duty did not feature at all in the Autumn Statement but may potentially make an appearance prior to a general election next year.
Rob concluded: “Although the reduction in National Insurance is welcome for employees, it comes against a longer-term backdrop of the freezing of tax bands and fiscal drag which has led to many being faced with higher rates of tax than they would otherwise have expected.
“Changes within the Autumn Statement will have a sizeable impact on some SMEs and business owners. The tax landscape is increasingly complex, and advice is key to navigating the current rules and making best use of tax planning opportunities available.”
To find out more about Milsted Langdon’s full range of accounting, tax and business advisory services, please visit www.milsted-langdon.co.uk.