The Autumn Statement 2013 - The Impact on Businesses


The Chancellor’s affirmation in the Autumn Statement that the economy is actually growing, following years of downgraded forecasts and economic doom and gloom, should be welcomed by businesses and individuals. It is a sign that companies can, perhaps, finally start to make plans for the future with greater assurance and confidence.

Below we outline the main headlines for businesses and go into more details regarding the main announcements.

George Osborne was also keen to highlight his belief that “The best way to help businesses is by lowering the burden of tax”. He once again reaffirmed the government’s commitment to a 20% rate of Corporation Tax (that had been announced in the Budget) and outlined more specific measures to help British businesses.

Partnerships:

One of the main announcements that many professional service businesses will have been waiting for was the clarification regarding Partnerships and employment status. There is a belief that HMRC have not gone far enough in their explanation of the finer points of the proposed new legislation but the details that were announced, including draft legislation, can be found here.

Headline Measures to Provide Help for Businesses:

  • The annual business rate rise will be capped at 2%, rather than at the rate of retail price inflation – RPI - (which is currently 3.2%). This will now also be payable in monthly instalments.
  • Businesses moving into vacant properties will have their rates cut by 50%, known as ‘re-occupation relief’.
  • National Insurance Contributions will be scrapped for under-21s from 2015. This should make it cheaper for businesses to employ young people.
  • A further £25 million will be made available to encourage employee ownership.
  • The Chancellor plans to introduce a £1,000 business rates discount to help the high street.
  • The Small Business Rate Relief has been doubled for a further 12 months from 1 April 2014 to help 540,000 firms.
  • Boost in start-up loans scheme aiming to help 50,000 more people start their own businesses.
  • The government plans to provide an extra £40 million to increase the number of people starting higher apprenticeships by 20,000.

Cut in Business Rates:

The Chancellor outlined his desire to help struggling retailers and particularly reduce the impact of business rates. While the measures below will be gratefully received by small and medium sized businesses who view these rates as an unnecessarily heavy burden to bear in the current economic climate, there will no doubt be disappointment that the Chancellor did not go further and announce a full review of the system that many believe is outdated – including Business Secretary, Vince Cable.

It was announced that the annual business rate rise will be capped at 2% for one year from 1 April 2014, which is a reduction from the nearly 3% rise that was anticipated. Businesses will also have the option to pay this in 12 monthly installments.

Perhaps this Autumn Statement’s ‘rabbit out of the hat’ (most announcements had been leaked in advance) were the Chancellor’s plans to introduce a new 'reoccupation relief'  which will provide a 50% discount in business rates for 18 months for businesses moving into empty retail premises between April 2014 and March 2016.

There will also be a discount of £1,000 for retail and food and drink premises with a rateable value up to £50,000 to be introduced for two years from 1 April 2014.

The Chancellor also outlined plans to extend the existing small business rate relief (SBRR) by one year, which had been due to end on 31 March 2014. The rules will also be relaxed to allow businesses in receipt of SBRR to take on an additional property while retaining the relief on the first property for one year.

The various reliefs, including capping the increase in business rate increases at 2%, and the £1,000 discount, will cost the Treasury £2.5bn.

Employee Ownership:

In this year’s Budget the Chancellor outlined plans to encourage employee ownership among businesses. While the argument for giving employees greater ownership in their business can be seen, many employers will be dubious about whether this can work in practice, as a result of the complexity surrounding its implementation.

In this Autumn Statement the Chancellor set about to allay these concerns  by announcing that a further £25 million will be made available to encourage employee ownership.

The additional cash will be used to fund:

- an exemption from inheritance tax for transfers to employee ownership trusts, where certain (as yet unspecified) conditions are met.

- relief from capital gains tax on disposals of shares that result in a controlling interest in a company being held by a trust used as an indirect employee ownership structure from April 2014

- an annual exemption from income tax on bonuses (or equivalent payments) up to £3,600 paid to employees of companies that are indirectly employee owned from October 2014

Employer National Insurance contributions cut for under 21s:

Another headline grabbing announcement from this year’s Autumn Statement was the declaration that the government intends to cut employer National Insurance contributions (NICs) on earnings paid to an estimated 1.5 million under 21 year olds from April 2015. The measure will apply to earnings below the upper earnings limit. Clearly the Chancellor’s aim is to try and reduce the level of youth unemployment.

This announcement will be welcomed by employers, who view NICs (alongside Business Rates) as a significant burden to bear, particularly if they are being relied upon to grow and boost the UK economy. This cutting of NICs will also further back up the recently announced "employment allowance" of £2,000 for each employer that is currently being passed through Parliament.

However, once again it could be argued that the Chancellor has not gone far enough, particularly if one considers that the cost of the latest proposal is predicted to be £465 million in 2015/16, which gives an average saving per affected employee of only £310.

The Chancellor also outlined plans to help stimulate youth employment by removing the cap on the numbers of students England's universities can admit in 2015. In 2014, universities in England will also be able to admit an extra 30,000 students. Further more, the government plans to provide an extra £40 million to increase the number of people starting higher apprenticeships by 20,000.

Charities established for tax avoidance purposes:

Following recent cases whereby charities have been set up with the main intention to avoid tax, the Chancellor plans to introduce legislation in the Finance Bill 2014 to prevent a charity from being entitled to claim charity tax reliefs if one of the main purposes of establishing the charity is simply tax avoidance.

The definition of a charity for tax purposes will be amended to exclude such charities.

For more information on any of the issues outlined above, contact our expert tax team or complete a quick enquiry form and we will get back to you.

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