Budget 2017: What does it mean for designers?

We take a closer look at the budget and what it means for designers – small business owners may benefit from reduced corporation tax but there is a tax hike for freelance designers.

Following the last ever Spring Budget, designers and design businesses face mixed fortunes: tax breaks for small businesses have been introduced as well as a huge shake-up tax rules for the self-employed, meaning freelancers will pay more tax and may have to put up their fees to compensate.

Meanwhile in an echo of previous budgets, austerity measures look set to continue as the Government sets its sights on reducing national debt and seems prepared to squeeze the public purse and raise some taxes to do so.

It is possible that this is also an effort to prepare for future difficulties and make savings before any potential Brexit fallout.

As Chancellor Philip Hammond delivered the Budget he focused on a message around growth in the UK. His forecast for GDP growth in 2017 has increased from 1.4% to 2% and while there is a growth dip to 1.6% in 2018 this is then predicted to rise back up to 2.1% by 2020. (GDP, Gross Domestic Product, is the value of a country’s goods and services).

Meanwhile there is a downward adjustment to the budget deficit forecast meaning the nation will borrow £51.7bn in 2016-17, which is predicted to fall to £16.8bn in 2021-2022.

Corporation tax

Hammond set out a positive narrative for small businesses, saying that he would “stick to the business tax roadmap” and reduce corporation tax to 17%, which is the lowest rate out of all G20 countries.

While this ties in with his rhetoric that “Britain is open for business” the Design Business Association’s, (DBA’s) CEO Deborah Dawton says: “Showing how the UK is the best place to start a new business is a key aim for Government.”

She adds: “The start-up scene is great for the design sector. In our experience, successful start-ups often tap into design as the means of differentiating themselves, and of adding value to their proposition.

“They benefit from the immediate boost to sales that investment in design can bring at a critical time in their growth.”

Shake-up in tax for self-employed

The biggest negative impact appears to be changes in personal tax rules for freelancers.

The National Insurance band known as Class 4 NIC is paid by the self-employed on net profits. Net profit is profitability after taking into account additional costs. Hammond will introduce an increase from 9% to 10% from April 2018, which will rise to 11% in 2019.

Mike Hayes, tax partner at creative sector accountants, Kingston Smith W1 says: “The big Budget blow to the design sector will apply to the large number of creative agencies that use freelancers who are self-employed for tax purposes.

“The increase in Class 4 NICs by 1% will cost a self-employed individual up to £368 per year and the increase of a further 1% from April 2019 will cost a further £368 per year. This equates to £7.07 per week for each increase.”

This means that freelancers may have to put up their fees to cover the extra personal cost, which will in turn affect the consultancies which hire them.

Small business tax

Small business rate relief was devised so that companies would not pay tax on the first part of the value of their property.

In last year’s budget, set by then chancellor George Osborne, the small business rate relief was raised on properties worth up to £15,000. (This means any non-residential property).

It presented some problems and even drew criticism from people within the Conservative Party as re-evaluating properties in this way meant that many businesses found themselves in a new tax bracket with much more to pay.

Hammond has proposed the following:

Any small business refused its small business rate relief will not see its bill increase by more than £50 a month.

He will also give local authorities a £300 million pot to provide relief on a discretionary basis for any businesses which have been hit hard by the re-evaluated property thresholds.

Education

Hammond has put aside £320 million for what are essentially grammar schools – “academically selective free schools” as he calls them.

T-levels are to be introduced, which are a series of 15 new technical qualifications created for 16-year-olds.

John Kampfner, CEO at the Creative Industries Federation says: “This new qualification needs to be considered in the context of the skills shortages in the creative sector and the potential for growth in the creative industries.”

Research and development

The Government has already been accused of prioritising investment of science and engineering over the creative industries.

The last Autumn Statement, also set out by Hammond, was a blueprint for science, tech and innovation investment.

Last November the design industry reacted critically, recognising how the contribution of science, tech and innovation are valuable to the economy, but also identifying a misunderstanding by Government to see how these sectors can work together with the arts and creative industries.

In this Budget Hammond has launched a National Productivity Investment Fund of £23 billion targeting innovation and infrastructure.

He said: “As the pace of technology advances and competition from the rest of the world increases, we must build on our strengths in science and tech innovation to ensure the next generation of discoveries is made, developed and produced in Britain.”

This was presented with an additional research and development, (R&D) fund, which will be worth £20bn by 2020-2021.

Nesta senior director for creative economy and data analytics Hasan Bakhshi says: “Unfortunately, official definitions of R&D used today by the UK Government continue to exclude the arts, humanities and social sciences. Consequently, much R&D in the creative industries is not recognised and does not qualify for targeted R&D support.

“Nesta argues that as the Government seeks to increase the UK’s R&D investment through measures like the Industrial Strategy Challenge Fund and the R&D tax relief, it should ensure its R&D definitions do not neglect the very areas where the UK has international strengths, like the creative industries.”

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