Steve Deutsch looks at the major developments of interest for small firms in the Autumn Budget.
After alienating some small firms and self-employed workers after proposing tax rises in his inaugural budget in March, chancellor Philip Hammond undertook a more pragmatic approach in delivering the Autumn Budget 2017 – Britain’s first for 21 years.
Hammond’s pivotal speech, which included some welcome developments for businesses, was delivered against a backdrop of political and economic uncertainty. UK growth forecasts for 2017 have been lowered, from two per cent to 1.5 per cent, and this figure is anticipated to fall to just 1.3 per cent in 2019 when Britain formally commences life outside of the EU.
Understandably, the UK economy’s lukewarm projection has influenced legal firms to think long and hard about their short- and medium-term investment plans.
But there was some more encouraging news for SMEs. The chancellor’s U-turn on shelving plans to make firms with a turnover of £85,000 or less start paying VAT has been applauded by thousands of small businesses which fall below this threshold. The government’s decision to bring forward reforms to business rates by two years is intended to offer further financial relief. From April 2018, business rates will switch from being increased by the present Retail Price Index (RPI) to the Consumer Price Index (CPI), which utilises a different method of measuring inflation that tends to be higher.
In addition, business rate revaluations will now be conducted every three years instead of five, commencing at the next revaluation in 2022. It follows on from the government’s long-term commitment to reducing corporation tax over a phased period to 17 per cent by 2020.
SMEs are considered the backbone of the UK economy and helping them to grow has taken on an even greater significance as Brexit looms. With that in mind, the November Budget has been orchestrated with one eye firmly on the future to boost productivity levels and bridge the UK’s skills gaps. Research & development (R&D) tax credits, which enable companies to claim payable cash credits as a proportion of their qualifying R&D expenditure, will rise by one per cent from 2018. This forms part of a £2.3bn investment to support businesses developing new products and services through innovation.
Despite Hammond’s vision to make Britain’s businesses world leaders in their fields, the devil is in the detail. The R&D tax rise, from 11 per cent to 12 per cent, specifically relates to R&D expenditure credit (RDEC) for larger companies, as opposed to the SME R&D relief for businesses which employ less than 500 staff – the first time since RDEC’s introduction that the two schemes have not been increased simultaneously.
However, the Budget contained other innovation-led incentives aimed at fostering a ‘technology revolution’. These include plans to invest over £500m to roll out 5G mobile networks, the provision of full fibre broadband, and a range of other technological initiatives, such as artificial intelligence (AI).
For their part, a growing number of UK law firms are gradually introducing AI technology to increase efficiency by automating labour-intensive manual processes. Examples include using predictive coding software to analyse hundreds of thousands of disclosure documents to speed up the time it takes to a review a case, replacing routine tasks that are usually assigned to junior lawyers. AI technology is expected to transform the legal sector by 2020 through its ability to analyse accurately huge volumes of data with speed and precision.
Fortunately, the speed of innovation does not have to be a cost barrier for firms who wish to adopt modern ways of working to drive productivity. Flexible and tailored asset finance solutions from specialists can allow the cost of IT-related investments to be spread over a period from one to five years and cover software, hardware and associated implementation, maintenance and support costs. This ensures that ambitious law firms can quickly adopt emerging technologies without impacting their cash flow by purchasing new assets upfront which could soon become outdated.
Overall, the Autumn Budget proposals represent something of a mixed bag for small firms. There are some elements that will offer short-term reassurance to businesses, but more still needs to be done to provide them with the sustained, long-term financial support they need to maximise growth and profitability.
External finance solutions from specialist financial lenders can be an important enabler to helping businesses to expand and compete on a level playing field with larger, more established competitors.
Steve Deutsch is CEO of Wesleyan Bank and Syscap. Wesleyan Bank is the Law Society’s only endorsed finance provider.