Chancellor “Biz support to continue for now”.. regional leaders respond …

Chancellor Rishi Sunak

The UK economy is forecast to return to pre-Covid levels by the middle of next year, according to UK Chancellor Rishi Sunak.

But to achieve that corporation tax for bigger companies on their profits is set to rise from the current 19 per cent to 25 per cent in April 2023

Businesses with profits of £50,000 or less, around 70 per cent of actively trading companies, will continue to be taxed at 19 per cent. A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25 per cent rate.

The chancellor promised billions to support businesses and an investment-led recovery.

Key points affecting businesses:

  • The Coronavirus Job Retention Scheme will be extended to September and the Self-Employment Income Support Scheme (SEISS) will continue with a fourth and a fifth grant.
  • More than 600,000 people, many of whom became self-employed in 2019-20, may now be able to claim direct cash grants under SEISS
  • Business rates holiday in England has been extended by an additional three months
  • To continue supporting the 150,000 businesses in the tourism and hospitality sectors and to help protect 2.4 million jobs, the government has extended the temporary 5 per cent reduced rate of VAT until 30 September 2021. To help businesses manage the transition back to the standard rate, a 12.5% rate will then apply for a further six months, until 31 March 2022.
  • Grant funding will be available to businesses in England through a new £5 billion Restart Grant scheme to help the high street, providing up to £18,000, bringing the total spent on business grants to £25 billion
  • A new Recovery Loan Scheme will also be launched to replace the existing government guaranteed schemes
  • £700 million will support the UK’s arts, culture and sporting institutions as they reopen
  • Fuel duty will be frozen for the 11th consecutive year and there will be a freeze in duty rates for beer, cider, wine and spirits
  • Bristol has lost out in its bid to be a freeport. The chancellor announced that new English Freeports will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside and will be special economic zones with different rules to make it easier and cheaper to do business.
  • 130,000 small and medium sized businesses will be supported through the new Help to Grow scheme, providing the digital and management tools needed to innovate, grow and help drive recovery.
  • Beginning April 2021, a new super-deduction will cut companies’ tax bill by 25p for every pound they invest in new equipment meaning they can reduce their taxable profits by 130 per cent of the cost. This is worth £25 billion to companies over the two-year period the super-deduction will be in full effect.
  • The UK will issue at least £15 billion in green bonds to help finance the transition to net zero and the government will launch the world’s first sovereign green savings bond for retail investors.

The Chancellor said that annual growth is set to rebound by four per cent this year, followed by 7.3 per cent growth next year. Unemployment is expected to peak at 6.5 per cent next year, lower than 11.9 per cent which had previously been predicted.

UK peacetime borrowing is at a record of £355 billion this year and expected to total £234 billion in 21/22.

 

BUDGET RESPONSES FROM ACROSS THE REGION AS THEY COME IN….

Phil Dickinson, Tax Partner at accountants Shaw Gibbs said: “[With regard to the increase in corporation tax in 2023] It is now more relevant to restructure and to look at how profits are accounted. It is possible that we will see a raft of businesses looking into the options of dis-incorporation. This goes against years of incentivisation by the Government for businesses to incorporate via the low corporation tax regime in the UK.

This may also discourage overseas companies looking to set up operations in the UK, especially our European neighbours who are already wary of the complexities which have arisen due to Brexit.

High marginal rates may also become an issue where a company is in the band between £50 and £250k of profits. This is due to the ‘tapering up’ of the tax in this middle-band before the flat rate of 25% applies. We have seen this in the past and there is a possibility that those who are in the middle-band will pay more than the 25%.”

Simon Crookston, partner at Leading audit, tax, advisory and risk firm Crowe, said: “It is not a surprise that the Chancellor is seeking to increase the corporation tax rate to 25% following recent press speculation. Delaying the increase to April 2023 is great for businesses in the short term, many of whom have had to substantially cut costs over recent months in order to break even or survive. Shielding smaller businesses from this increase through a taper system is also very welcome. At the current time, many businesses are looking to reinvest in new plant and equipment and technology to enable them to innovate and get back on track, it is therefore good news that the Chancellor has announced a 130% super deduction for investment in new machinery.  This will be very welcomed by business.

“Overall, this was a good Budget from the Chancellor which goes a long way to setting out a road map for the country, as we start on a journey of recovery. Clearly there is still a long way to go. Stimulating the economy and supporting entrepreneurial businesses is a key part of this.  I would like to have seen more from the Chancellor in relation to providing additional relief for innovative businesses rather than just the announcement of a consultation.  In addition, what seems to be missing is a suite of incentives to encourage more private sector investment into growing and innovative businesses.  An extension or relaxing of existing venture capital schemes would have been a welcome addition to help reinvigorate the British economy.

Nigel Bostock, Chief Executive, Crowe, added: “The Budget 2021 was always going to be a balancing act for Rishi Sunak.  Although post-Brexit, the UK continues to be in the ‘eye of the storm’ of the pandemic, albeit with positive indications ahead with the progressive vaccination roll-out programme and the gradual step 1 to 4 plan to ease restrictions over coming months.

“Now does not appear the time to raise taxes while pressure continues to be on the government to provide wider support to people, business, the economy and progress their ‘build back better’ Coronavirus Recovery Campaign.  The Budget has effectively delivered on this agenda.

“While the Budget delivered what we expected, what remains clear is that at some stage there will be a need to pay for the significant government support provided (estimated at £352bn worth of Covid-related support out of a sum of £407bn total fiscal support) and the consequential government borrowing obtained during the pandemic.

“Now is not the time, but the balancing act will continue in the future as the need for tax rises will increase against a desire to ensure that, as this happens, such action does not unduly create a loss of public and consumer confidence to damage the economic growth needed for the ‘build back better’ agenda.”

Tom Bromwich, from Worcestershire commercial property agency Bromwich Hardy, said: : “Chancellor Rishi Sunak’s £5 billion package of support for the hospitality and tourism industries – as well as the extension of VAT and business rate support – would help some of the businesses hardest hit by the pandemic.

“The Chancellor’s measures to support businesses which have borne the brunt of the pandemic will be helpful to the wider economy, particularly in the coming months as we hopefully begin to put the crisis behind us.

“We will keep an eye on earlier promises to review the structure of business rates – something which is long overdue – and as ever with these statements the devil will be in the detail.

“We also have concerns that some of the extra taxation measures announced might run the risk of choking off the recovery before it has had chance to really establish itself. Businesses need the freedom to make their own commercial and investment decisions without the fear that the Treasury will be waiting for them as soon as they start to turn a profit.”

Jonathan Mountford MRICS, who heads up Worcestershire-based GJS Dillon said:“This is welcome news for home buyers but 3 months can go very quickly. We’d advise them not to leave it to the last minute to book a survey if they are going to meet the completion deadline of 30th June.”

The Chancellor announced that the cap will fall to £250,000 from July to the end of September before returning to its usual level of £125,000 in October.

Tony Danker, CBI Director-General: “This Budget succeeds strongly in protecting the economy now and kickstarting recovery. It leaves open the question of UK competitiveness long term.

“The Chancellor has gone above and beyond to protect UK businesses and people’s livelihoods through the crisis and get firms spending.

“Thousands of firms will be relieved to receive support to finish the job and get through the coming months. The Budget also has a clear eye to the future; to ensure finances are sustainable, while building confidence and investment in a lasting recovery.

“The Chancellor has taken a welcome, broad view on how to stimulate growth from the new Infrastructure Bank, to Help to Grow and incentives to take on apprentices.

“The super deduction should be a real catalyst for firms to greenlight investment decisions. The boldness of the Chancellor on this measure is to be admired.

“But moving Corporation Tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK.

“The government must now have a laser-like focus on the UK’s competitive position in the round, including fundamental reform of the unfair Business Rates system. The UK must remain attractive for every type of business, from the innovation, high-growth UK homegrown firm to the global firms investing in the UK. We look forward to working with the government to achieve this.”

David Mott, Founder Partner, Oxford Capital commented on the Government’s commitment to build high growth UK businesses: “Today’s announcement from the Chancellor is a significant step forward in its commitment to build high growth, digitally led businesses.  In the future we believe every company will become a software company and the Government is taking the steps to recognise this now through its “Help to Grow” management and digital initiatives for small businesses.  As an investor in UK technology start-ups there is a huge amount to be positive about in today’s Budget to accelerate the growth of UK companies from a digital, management and talent acquisition perspective.  Across the 20 companies in our portfolio we expect at least 500 new jobs to be created this year, the measures announced today mean founders can now build their teams with greater confidence.  This will be the quickest way to build a successful economy in the future.”

Oxford Capital is an alternative investment manager investing in early-stage technology companies where the UK is considered a world leader.

Kerry Golds, MD of luxury travel company Cheltenham-headquartered Abercrombie & Kent, said:

“Despite vaccine progress, the pandemic continues to challenge businesses, so an extension to the furlough scheme is a welcome step in ensuring the travel industry’s survival.

“Yet, given Sunak introduced industry-specific support for the arts, retail and hospitality, there was still no mention of the beleaguered travel industry. Arguably, international travel will take the most time to recover to levels of £200 billion it contributes annually to the UK economy, and the employment of four million people.”

Phil Smith, Managing Director of Business West, said:  “It was another extraordinary budget from the Chancellor, reflecting what is an extraordinary time for the UK economy.

“Businesses will welcome an extension of the full range of COVID-19 support measures, with the timescales longer than many were expecting. The extension of the furlough scheme, an extended and more targeted self-employed scheme, a new tranche of business grants and a new recovery loan scheme will all continue to provide a safety net for businesses through to the autumn. There will be disappointment, however, that limited company owners appear yet again to have been forgotten.

“Overall, given the uncertainty that still hangs over the ending of lockdown, the Chancellor’s approach makes good sense and contrasts favourably from the ‘stop start’ approach to previous business support extensions.

“The Chancellor’s pledge to “continue doing whatever it takes” will put businesspeople at ease, many of whom still face extremely challenging times ahead. Nevertheless, there was a sting in the tail – with the Chancellor setting out a path to repairing the public finances.

“Rather than targeting the broader public, the weight of tax rises will fall on the private sector – most notably with a rise in corporation tax to 25% in 2023 – a higher level than many were expecting. There is some tapering for companies with very low profits. There was however a big, short term incentive for firms to invest in new plant and machinery via a “super deduction” at 130% over the next two years, and more loss flexibility for struggling businesses.

“Many businesses recognise that the government’s generosity has to be repaid – but will worry that it will fall on a relatively narrow set of wealth creators, making the tax base more vulnerable to changes in economic circumstance and reducing our international attractiveness.

“In regional terms, the West Country looks like it is losing out. Bristol failed to secure a Free Port for the region, as much of the focus of the Chancellor was fixed on the North of England, Scotland and Wales. This is disappointing and we encourage our MPs and political leaders to continue to fight for our fair share of levelling up money to address the needs of this region.”

Sharon Smith, Chief Executive of Herefordshire & Worcestershire Chamber of Commerce, said: “Many business concerns have been addressed in the Chancellor’s Budget Statement with extensions to major schemes such as the furlough scheme, VAT reductions and business rates holiday.

“The extra to support aimed at the self-employed is also welcomed, with an addition 600,000 people eligible for support.”

“The Chancellor knows that businesses may not be completely ready to stand on their own when the economy re-opens. This longer-term support will give businesses confidence and provide economic sustainability throughout the year.”

Sharla Dandy, Partner at McGills Chartered Accountants, said: “There is real hope that the country can bounce back from the pandemic and the Budget contains many measures that will assist with this recovery.

“£5 billion worth of Restart Grants for non-essential retail, hospitality, accommodation, leisure, personal care and gym businesses will also be welcome and a replacement to the existing Government-backed Coronavirus loan schemes, in the form of the Recovery Loan Scheme, will help businesses access loans of between £25,001 and £10 million.”

“The Budget was packed with a range of support initiatives, including an extension to the Business Rates holiday worth £6 billion and a further extension to the VAT cut for hospitality, accommodation and attractions across the UK until the end of September, which will be followed by a smaller rate reduction until 31 March 2022.”

“McGills Chartered Accountants said that the highly innovative ‘super deduction’, which will offer tax relief of up to 130 per cent, could also cut some company’s tax bills by 25p for every pound they spend on new equipment.”

Despite the support on offer, McGills Chartered Accountants also wants to highlight the additional tax rises that may be required to help the country as it attempts to repay the costs of COVID-19, which include more than £400 billion of support measures.

“A tax rise was somewhat inevitable if the country is to balance its books after some of the highest public spending since the Second World War.”