Optimism amidst uncertainty – preparing for the upcoming budget – by Nick Smith
With the October budget looming, UK small and medium-sized enterprises (SMEs) are caught between a sluggish financial system and mounting economic pressure. It is widely accepted by businesses and no secret to the wider economy that the next few years are going to be difficult to tackle.
The general financial outlook isn’t too great either, with 40% of UK SMEs stopping or pausing an element of their business in 2023 due to a lack of access to funding, a sharp rise from the 27% reported in 2022 (1). So why is this? It is because where SMEs see opportunity, traditional lenders see risk. While SMEs are ready to pivot, grow and evolve, the institutions are traditionally stuck in slow motion.
Meanwhile, despite falling inflation, a recent survey by iwoca found that ‘nearly half (49%) of UK SMEs are not benefitting from the lower levels of inflation’ (2). Soaring operating costs and sky-high energy bills are continuing to squeeze the life out of businesses and making an already challenging environment nearly unmanageable. The big question: will Labour step up and champion business owners and entrepreneurs in the UK, or leave them out in the cold in the upcoming budget?
Amidst the uncertainty, SMEs are not backing down. Entwined in this hard-hitting situation is a huge amount of optimism, an energy that truly defines the UK’s SME sector. Everyone knows that the budget is going to hit hard, no matter what is announced, but UK businesses are fighting hard, taking control of their own situations and exploring the wider lending landscape. In fact, recent statistics show that UK business confidence has hit a nine-year high in 2024, with overall business confidence at a 45% year to date average – well above the long-term average of 29% (3).
The appetite and hunger for growth is undeniable, but SMEs are sick of stagnation (4) and old-fashioned regulations. They want action, not red tape. They want opportunity, not obstacle. And they want the support needed to seize the future.
However, as uncertainty continues to swirl, and the Labour party give speeches with little substance, we do have an idea of what may be announced in the budget itself.
Firstly, we know Labour will likely give a bit more clarity around the business tax roadmap, simplifying it for businesses, digitising processes to deliver a simpler, more digitised and proportionate tax system (5), and reforming business rates.
Secondly there are likely to be changes to capital gains taxes. The £3,000 annual exemption could be cut or scrapped, with the potential changes coming into play immediately, or with a delayed start to the April 2025 tax year.
Thirdly are changes to dividends, it is rumoured that the nil-rate band (which sits at £500 currently) could be reduced again or taken away completely. Either option will lead to higher taxes for business owners who rely on dividends as part of their pay.
A fourth, although not confirmed, is the potential hike to employer national insurance contributions. Following an interview with the BBC on the 15th October, Starmer failed to rule out the potential tax rise (6). This would go against the Labour parties manifesto pledge, although it does not seem to faze the party.
On top of the above, expect potential changes to the non-dom tax regime, VAT on private schools, inheritance tax, pension tax and cuts to Isa and personal savings allowances.
Now is the time to act. Here are some quick wins to help SMEs future-proof their business and mitigate the impact of the upcoming changes:
1. Align cash flow
Managing cash flow is critical in the face of economic uncertainty. It is important to tighten payment collection terms and offer incentives where appropriate (7). Keep documents and terminology simple and straightforward, and state any terms clearly on relevant documents and websites.
2. Review dividend payments
Get ahead of the speculation around potential dividend changes. Consider withdrawing dividends before the budget hits, but always check with a financial professional before doing so to align actions with business strategies and cash flow needs (7).
3. Prepare for tax adjustments and make the most of reliefs
Labour has committed to maintaining the Conservatives’ full expensing policy (8), so review corporate structure and profit forecasts to make the most of available reliefs and avoid any nasty surprises.
SMEs and business owners that are prepared for the upcoming budget will be better positioned to dodge higher costs, maximise reliefs and navigate regulatory changes.
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4)https://www.credit-connect.co.uk/news/fsb-calls-for-decisive-pro-small-business-budget/
7)https://www.smeweb.com/preparing-for-the-autumn-budget-key-steps-for-uk-small-businesses/
8)https://www.simplybusiness.co.uk/knowledge/news/autumn-budget-for-small-businesses/
