Stealthy tax grabs hit small firms, as more needed on growth and prosperity

Added by Love Business East Midlands | 17 November 2022

Responding to the Chancellor’s Autumn Statement, local development manager of the Federation of Small Businesses (FSB), Jennifer Thomas, said:

“Today’s Budget is high on stealth-creation and low on wealth-creation, piling more pressure on the UK’s 5.5 million small businesses, their employees and customers.

“While tackling inflation is essential, so are measures to create conditions for prosperity, growth and support enterprise. Today is a missed opportunity to avoid further economic slowdown.

“Small businesses, which account for more than 16 million jobs in the UK, were already facing an acute cost of doing business crisis through soaring costs, falling revenues, shrinking availability of affordable finance, and a rise in invoices being paid late.

“On top of all that, they now face even higher taxes, cuts to innovation, and a recipe for a longer and deeper recession.

“The slashing of dividend taxation allowances will be a bitter blow to hard-working owners of small limited companies trying to pay the bills, earn a living and grow their business. This is a group which was excluded from direct support during the darkest days of Covid, then more recently pushed out of the cut in National Insurance.

“The changes set out by the Chancellor will leave a company director earning £40,000 a year more than £500 worse off than an employee earning £40,000 and paying income tax and national insurance.

“Freezing the threshold for employer National Insurance at a time of such high inflation is a stealthy hike in the jobs tax, just as recessionary pressures threaten an increase in unemployment. Alongside the understandable rise in the Living Wage, this Budget will ramp up the costs of employment without offsetting that with measures to reduce other business costs. The few saving graces here are the retention of the Employment Allowance at its current level, which was hard fought for by FSB, and the continuation of the lower National Insurance rate for the self-employed and employees.

“Gutting the Research and Development (R&D) tax credit scheme will crush innovation and growth, resulting in tens of thousands fewer R&D intensive small businesses. This doom loop makes a mockery of plans for growth. The Chancellor has stewardship responsibilities to the next generation and he has failed with this move to kill R&D. The Office for Budget Responsibility will need to look again its assessment of the impact in due course as the ONS completes its revision of UK R&D statistics.”

“On Business Rates, it is welcome news that transitional relief will be changed alongside next year’s revaluation and with an inflationary freeze – avoiding the threat of a huge 10.1% increase in bills. The positive effect will be for those whose valuations go down, who as a result of the change will be paying a fairer level of rates from year one. Alongside significant expansion of relief for small firms in retail, hospitality and leisure, this is a positive change. As the Chancellor mentioned, FSB has been calling for these changes and it is pleasing to see them being taken onboard.

“Stealthily freezing the VAT threshold at a time of sky-high inflation will both drag more struggling small firms into scope for the tax, while disincentivising others from growing. FSB’s research shows one-in-four (24%) of small firms and the self-employed are held back by the VAT threshold.

“It is welcome that the energy support package for small firms will remain in place until April, helping them through a very tough winter ahead. However, going forward, continued support should not be viewed through the narrow lens of specific sectors, but rather based upon the size of a business.

“The Chancellor may consider that today’s Statement has steadied the economic ship after recent turbulence. But it is now time to raise the anchor, re-start the engines, and set a course towards economic recovery, promoting enterprise and innovation, and future prosperity. Whether that direction is set in the coming months is a decision which will be make or break for many small businesses.”