South’s SMEs face ‘triple whammy’ from government – budget reactions

Small and medium-sized enterprises (SMEs) across the South are voicing their concerns over a ‘triple whammy’ of measures from this week’s budget which could stifle growth.

They’re now facing a 1.2 per cent hike in national insurance contributions (NICs) and 6.7 per cent rise in the national living wage (more on that in our dedicated coverage) – but must still pay the same rates of corporation tax.

And small businesses will need to start coughing up NICs sooner, with the earnings threshold lowered from £9,100 to just £5,000.

National accountants MHA estimate that the average cost of employing an individual on minimum wage will ultimately rise 10 per cent as a result of Rachel Reeves’ new measures.

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“The chancellor is trying to rebuild Britain by piling the pressure on businesses with extra taxes and employment costs,” said Richard Godman, tax partner at Menzies LLP.

“This risks destabilising the small and medium-sized firms that are the foundation of the economy.

“Though changes to thresholds and business rates will be welcomed, increasing NICs for employers and reducing the starting threshold is a direct hit on the ability of businesses to invest in their people and their future.

“Increases to national living wage may hinder businesses from growing their workforces and raising pay in the future.”

Nigel Smith, managing partner of Dorset law firm Ellis Jones Solicitors, agreed that SMEs make up the UK’s economic backbone, accounting for 99 per cent of the nation’s business population and 61 per cent of its employment.

“If this was meant to be a no-tax-increase budget, I’d hate to see one when the chancellor was really trying,” he added.

“The increase in employer NICs will have unintended consequences, including pressure on wages, increased prices – and in the worst-case scenario, it could lead some businesses to fail.”

What do SMEs themselves make of this week’s headlines? (If it wasn’t clear – they’re not best pleased).

“Hitting the SME community will not encourage employment at a time when there’s a rise in company closures,” said Andrew Barnett, managing director of Hampshire engineering firm Barnbrook Systems.

“As a company, we’ve tried to make sure we remain globally competitive without raising prices, but this will now have to be reviewed also.

“Supporting small businesses means ensuring their ability to grow, create jobs and contribute to the economic landscape.

“The government’s role should include nurturing these enterprises, creating a competitive business environment and considering long-term sustainability.”

It’s bad news for entrepreneurs too, says Rachel Nutt, partner at MHA, as the chancellor took aim at capital gains.

“Aside from the annual increase in employers’ national insurance and the anticipated loss of the 10 per cent capital gains tax rate on sale of shares, entrepreneurial business owners need to radically rethink their exposure to inheritance tax post-budget.

“The 100 per cent relief from inheritance for all shares in trading companies that business owners have enjoyed has now halved for all businesses worth over £1 million.

“While the speech suggested this applied only to AIM shares, unlisted shares in your family-owned training companies also appear to be in scope.

“Unless those shares are left to a spouse on death, an effective rate of 20 per cent will now be payable on the entire share value of the businesses value above £1 million on death.

“The unexpected passing of a key shareholder could now put significant pressure on the business to be able to fund their death taxes and maintain itself.”

Though these changes will be tough to swallow for many SMEs – and no doubt sink a few – Jennet Siebrits, head of UK Research at CBRE, points out that it’s all for a good cause.

“More positively, we’re seeing a solid narrative from the government,” she summarised.

“The increased taxes will provide much-needed funds to support growth, with a focus on industries of the future, new housing stock and retrofitting key sites across the country.”