What a butcher, baker and candlestick maker want from the Budget: We ask them what Hammond can do for Britain's small businesses
We ask them what Hammond can do for Britain's small businesses
I'm also worried about the reduction in tax allowances. SMEs form such a large part of the labour force and UK economy but it's a worrying time for us.
With just days to go until Chancellor Philip Hammond steps up to the dispatch box to deliver the first Autumn Budget in over two decades, small businesses are waiting with bated breath.
While there's no crystal ball to reveal what exactly the Chancellor's speech has in store for Britain's budding enterprises, This is Money has tracked down a butcher, baker and candlestick maker to add their voices to the chorus of views coming from experts.
Here's the This is Money guide to what we know about the Budget so far and the measures that could help small businesses.
What we know so far
The Chancellor has already made some waves in the SME sector by announcing the abolishment of Class 2 National Insurance contributions that was due next April will be delayed by a year.
This means millions of self-employed workers will have to wait until 6 April 2019 to receive a £148 cut to their National Insurance bills.
The challenge for the government is to help SMEs flourish while ensuring there is enough cash in the bank in the lead up to Britain's formal exit from the European Union.
We get the view of three small businesses below and then look at what the Chancellor may do.
Budget wishlist from a butcher, a baker and a candlestick maker
Charlotte Mitchell runs Charlotte's Butchery, a high street butchers in Gosforth, Newcastle-upon-Tyne.
She has no concerns over the potential reduction in the VAT threshold because meats are exempt, but wants the government to do more to incentivise SME bosses to hire more full-time staff.
'All businesses big and small are required to set up a pension plan for their employees, which adds an additional cost burden on us. I would like the Chancellor to announce some form of incentive, like a tax break or a reduction in National Insurance Contributions, for us to employ more people rather than plugging apprenticeships.
'We don't knock them, but it is not easy for us to get some because we'd have to get them on a butchery college course, and there aren't many colleges that offer the course nearby.
'Yes we could offer zero-hour contracts but we're not a fan of them because they do not provide stability for the person on the other side.'
Philippa Askham, who runs south-west London based Sweetpea Pantry selling ready-made baking mixes with Tanya Mitchell, simply doesn't want the Chancellor to make any major announcements
'SMEs have undergone some significant changes from Brexit to the business rate revaluations recently, so I think we are in dire need of a period of stability to allow us to catch our breath,' she said.
'The changes to business rates did not effect us because we do not have a retail space but Brexit is an area of concern because we buy ingredients from the EU and export there also. We are none the wiser as to what will happen when Britain finally leaves.
'We'll take any changes announced in the Budget on the chin, and keep on working on our business.'
THE CANDLESTICK MAKER
As a sole trader, Jo Macfarlane, who runs a self-named candlemaking business in the East Neuk of Fife in Scotland, is concerned that the government will revive plans unpopular plans to increase National Insurance Contributions (NICs) for the self-employed.
The main item in the Chancellor's cross-hairs is VAT. He is currently mulling over dropping the turnover level above which a business must enter the VAT system and charge the tax on its sales.
At present, the threshold stands at £85,000 - which is one of the highest in the world, except for Singapore. It also dwarfs the EU average of £20,000.
According to the Office of Tax Simplification, the difference of an SME earning revenue of £85,000 and being subject to VAT compared to one earning £84,000 costs it an extra £17,000 in tax and its associated expenses.
In its recent review of VAT, the OTS warns the existence of the threshold could be hampering economic growth and productivity by preventing many growing businesses from continuing to expand as their turnover approaches the existing threshold.
They either limit expansion – either by not taking on extra staff or jobs or by suspending trading temporarily to keep their turnover below the threshold. Or they turn to illegal means, such as deliberately suppressing their recorded takings so they can report turnover below the VAT threshold.
It also found that reducing the figure to £25,000 could raise as much as £2billion each year for the Exchequer, by bringing as many as 1.5million small businesses into the system. However, the OTS is not believed to be calling for such a radical reduction.
But it has recommended a 'smoothing mechanism' such as a combination of reducing the threshold but allowing businesses to keep a portion of the VAT they collect.
Mike Cherry, national chairman of the Federation of Small Businesses, said forcing more small firms and the self-employed into the VAT regime would create a drag on business output.
A FSB survey of 1,017 companies found that small business owners spend an average of 44 hours managing VAT administration every year. That's the equivalent of a working week.
Cherry added: 'The VAT regime is awash with complexity and anomalies. When the burden of administration falls so heavily on business owners and the self-employed, it opens the door to lost hours and honest mistakes. Small firms are not like corporations – they don’t have accounting expertise on tap.'
Emma Jones, founder of small business support group Enterprise Nation, said a change to the VAT regime would add an additional burden to small business bosses who are already bogged down with other issues including Brexit, the General Data Protection Regulation, and digital taxation.
She added: On another note, is it fair to ask people to pay an extra 20 per cent more for coffee from an independent cafe when larger firms can afford to charge less?'
Self-employed vs ltd
It is widely thought the issue of workers setting themselves up as limited companies to avoid paying National Insurance contributions is firmly etched on the agenda for next week's Budget.
In April, the government implemented reforms to tax laws to crackdown on individuals who work full-time for public sector firms but are paid as freelancers to avoid paying National Insurance.
There have been whispers that the adjustments will be extended to the private sector in Wednesday's Budget. Should this happen, private sector firms would be handed the responsibility for setting the employment status of the contractors they hire.
Failure to do so would leave the firm liable for any missing tax.
The move would affect 5.5million private sector businesses, including 2million self-employed contractors and thousands of recruitment agencies.
The new measures have already caused a mass exodus of public sector contractor talent to the private sector, research by ContractorCalculator suggests.
Its survey, which involved a sample of 1,500 contractors, found that three quarters of public sector departments lost valuable contractors following the changes, with the talent drain resulting in the delay or cancellation of 71 per cent of projects.
Simon Rothenberg, business group manager at accountancy firm Blick Rothenberg, said: 'The Chancellor should consider carefully if the rules can be amended to release businesses that are innocently using contractors from the increased administration.'
Enterprise Investment Schemes
These schemes, often abbreviated to EIS, offer investors 30 per cent income tax relief on investments up to £1million each year. In other words, an individual investing £100,000 into these schemes would get £30,000 back from the tax man.
What's more, investors can also receive capital gains tax savings if their investments generate profits.
The idea is to encourage investors to pile money into budding enterprises - which are considered high-risk investment - to help them grow by offering appetising tax breaks.
Many believe the generous tax reliefs on EISs will be in the firing line in the upcoming Budget following the publication of The Treasury's consultation paper in the area.
In the dossier, the Treasury claims, the majority of EIS investment funds had a capital preservation objective in tax year 2015/16, which, if true, runs contrary to the purposes of issuing tax breaks.
Any scale-back in EIS incentives could ultimately result in the plugging of a finance stream for many small businesses.
Genevieve Moore, head of corporate tax at Blick Rothenberg, said the EIS reliefs should be preserved and calls for the relaxation in some of the criteria for qualifying businesses.
She said: 'EIS arrangements are somewhat complex; adding a huge burden of compliance to businesses and in some cases preventing these businesses from applying for EIS status in the first place due to the increased administration costs.'
The business bank view
Challenger bank Aldermore has mused an idea of creating a tax-incentivised savings plan in the form of an Entrepreneur Isa to help would-be business owners bankroll their ventures.
The bank said the Isa could follow a similar model to the Help to Buy equivalent – in which the government contributes 25p for every £1 saved, up to a cap of £3,000. It also proposes a minimum monthly contribution level of £50 and a maximum of £200.
In addition, Aldermore has called for the establishment of a Small Business Savings Allowance allowing sole traders and modest sized enterprises to earn up to £4,000 of income from savings, tax-free per year.
Ewan Edwards, head of savings at Aldermore, said: 'SMEs take significant risk in setting up their own businesses, yet often the rewards are relatively small.
'ISAs are well-trusted and understood product for personal savers, which already provide a route to savings for 21 million Britons. So creating a similar savings vehicle to help current or would-be business owners would only help to further support Britain’s entrepreneurial spirit.'