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Spring Budget 2024: The impact on SMEs

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SMEs are not, as such, massively affected by the Chancellor’s Budget proposals, though of course many business proprietors will be affected at a personal level by the personal tax changes noted elsewhere in this Budget Summary. Increasing the VAT registration limit by £5,000 to £90,000 is hardly game-changing. Reducing NIC for employees and the self-employed by 2% is better than increasing it; but the employers’ NIC ‘Payroll Tax’ remains obdurately high at 13.8%.

It’s worth recording that none of the reductions in employee NIC since 2022 (when it was 13.25%) has been matched by a reduction of the rate of tax charged on dividends. In principle this makes dividends increasingly unattractive to the owner of a private trading company compared with salary, though the exercise of determining the best strategy at varying levels of profit and remuneration has long been one of Byzantine complexity.

Almost hidden in the small print is a change to the ‘transfer of assets abroad’ provisions deeming any transfer made by a close company to have been made by any individual with a “qualifying interest” in the company. This reverses last year’s Supreme Court decision in Fisher. Furthermore, the change is retroactive in the sense that it will apply to income arising after 5 April 2024 regardless of when the close company made the offensive transfer.

Furnished Holiday Lettings have for many years inhabited a no-mans land between SME businesses and property investment, with many characteristics of the latter but all the tax advantages of the former. Although those advantages are to be removed, that will not take place until April 2025; meanwhile the opportunity appears to survive to realise properties before that date so as to take advantage of Business Asset Disposal Relief. However, the disposal must be a real one: there is an anti-forestalling rule, effective from Budget Day, to ‘prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules’.

Finally, HMRC’s Budget documents announce that it has published guidance on the tax deductibility of training costs for sole traders and the self-employed, clarifying that ‘updating existing skills, maintaining pace with technological advancements, or changes in industry practices, are deductible costs when calculating the taxable profits of a business’. It’s troubling to think that HMRC ever considered there to be any doubt.