Crowe Budget Reaction
Simon Warne, partner at audit, tax, advisory and risk firm, Crowe UK comments,
Kwasi Kwarteng’s first fiscal event went largely as expected and will be welcomed by family businesses as it followed the tax-cutting agenda set by Liz Truss. Business owner-managers had already adjusted their forecasts assuming Rishi Sunak’s corporation tax rise to 25% will not, in fact, take place, and will breathe a small sigh of relief at the extra reserves they will be left with as they look to navigate through these times of price volatility (energy and imports in particular), yesterday’s thumping interest-rate rise to 2.25% and full-employment labour market conditions.
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The cancellation of the planned Health and Social Care Levy and the November elimination of the 1.25% National Insurance [NI] rate rise (first announced on Twitter!) will also help businesses with trying to fund employees’ demands for rising wages in an era of general inflation creeping above 10% and forecast to stay there in the short term. The 1.25% tax rise on dividends will also be reversed in April 2023 which will make 2022/23 an anomalous year and will cause some business owners to examine dividend timing which may impact tax receipts on a macro level.
There were rumours of widescale alterations to the 20% basic rate of income tax or personal allowances. This elimination of the additional rate of 45% from April 2023 will be welcomed by many of our clients and the general cut of income tax to 19% will benefit over 30m people.
The chancellor announced new low-tax, low-regulation investment zones. This follows the ‘freeports’ model; an old idea given fresh impetus last year by Rishi Sunak. Agile businesses will be looking to see where these zones will be and will be weighing the tax and regulatory savings against the costs of moving to the designated areas. At first blush, the NI and business-rate savings do sound substantial and will be worth a closer look.
Nicky Owen, Partner at Crowe UK, Professional Practices comments:
“Reversal of the 1.25% rise in National Insurance Contributions is happening from 6 November; any reduction in people costs will always be welcomed.
With the current shortage of talent that firms are currently experiencing, this reduction is unlikely to be noticed.
People costs are rising as firms hike up salaries in a bid to recruit and retain talent and compensate for loss of talent.
HR teams are looking for innovative ways in which to recruit and retain people. Firms need to understand the motivators for their people and provide ever more flexible and bespoke packages.”
ACCA comments on government budget
Glenn Collins, Head of ACCA UK:
“Today’s statement on the Government’s Plan for Growth addressing the rise in cost of living and energy crisis is cautiously welcomed by ACCA UK as a step in the right direction to encourage business investment and growth.
“While this package will help in the short term we need to see more action by the government to alleviate the increasing financial pressures on businesses in the medium and longer term. For our economy to return to growth, small businesses, in particular, will need more support to invest, innovate, develop their workforce, and expand international trade, than was promised today.
“We have frequently highlighted our concern about the complexity of the tax system, so welcome the government’s commitment to simplification – reaffirmed today – and look forward to seeing more detail. However the government should be mindful that the changes announced today do not add yet more complexity.”
Tax Simplification and IR35
“We welcome the aim to simplify tax from today’s announcement. IR35 has desperately needed to be reviewed. The tax system as it stands is overly complex and burdensome for businesses, individuals and public bodies. The reform in April 2021 to IR35 left many businesses without the support they desperately needed due to confusion surrounding the rules and regulations.
“Now more than ever, simplicity is key. A simpler tax system avoids the potential for mistakes and enquiries, which too often distracts HMRC from addressing serious and deliberate evasion.
“However the dissolution of the Office of Tax Simplification is worrying and will impact UK businesses. The OTS previously worked with holding agencies and provided guidance on previous tax reforms and regulations. Without the OTS and with further details needed on how the government will simplify tax many UK SMEs will still be facing a complicated and unclear tax system.”
Corporation Tax/rate cut
“The government’s decision to keep Corporation tax at 19% will encourage businesses to invest. With the main rate of Corporation tax previously set to increase to 25% next April many businesses were becoming more nervous already feeling the strain of a rise in inflation, cost of living and energy prices, putting unnecessary pressure on businesses. Now more than ever businesses are looking at the ease of doing business and where investment opportunities lie.”
“ACCA is pleased to see the announcement of a reversal of the increased national insurance rate, something which we cautioned the previous chancellor against introducing earlier in the year. While we greatly appreciate the need to balance taxes raised against increased spending for the National Health Service, we are concerned that the increasing costs of doing business are negatively impacting business viability, particularly for SMEs. This reversal of the increase has created some breathing space for businesses in this period of economic turmoil.”
“Today’s announcement made no mention of a reduced VAT rate for businesses which needs to be considered by the government. VAT cuts would have provided businesses, and in particular the hospitality sector, a fighting chance at moving towards post-pandemic recovery. As we saw during the pandemic, targeting lower rates of VAT at businesses helped to give them a boost after the various lockdowns. Now with rising inflation, consumers are cutting back on discretionary spending. In order to keep the economy moving, we need action to support consumers and businesses.”
Late Payments“Given the importance of cashflow management and the detrimental impact of late payment on the financial viability of SMEs, ACCA believes this is a missed opportunity to extend the remit of the Small Business Commissioner.”
No mini budget – more of a Rolls Royce
Chris Sanger, EY’s Head of Tax Policy, comments on the emergency Budget:
“Although this was badged as a mini-Budget, the content contrasted well with many Budgets of the past. In making cuts in eight taxes, across 19 measures, reducing the government’s tax take by £146bn. The event dwarfed the last budget of the Chancellor’s predecessor, which, whilst it had more than twice as many measures (40), raised £65bn across the six years. In that way, this was no ‘mini’ Budget, but much more of a Rolls Royce.”
Budget provides more questions than answers
Stuart Weekes, partner, corporate tax
This mini Budget arguably leaves us with more questions than answers.
Is this really the start of a new era or just a desperate statement hanging onto the hope that reducing taxes will kick start the economy? Facing tough economic challenges, rising prices and a recession, does the Chancellor have insight or is this simply a roll of the dice? There are incentives for businesses but does the Chancellor really value innovative businesses?
SMEs take risks by investing in research and development and should be embraced by the UK government. Many SMEs really value the tax repayments provided by the R&D tax credit scheme but are subject to a PAYE cap. Reducing personal taxation will limit the R&D tax relief SMEs will receive. In an era where the tax authorities are taking a tougher stance with companies making R&D tax credit claims combined with the impending introduction of stricter regulation, some might wonder whether this government really values innovation.
Departure of the Office of Tax Simplification
Chris Sanger, EY’s Head of Tax Policy, comments on the emergency Budget:
“The departure of the Office of Tax Simplification, a brainchild of the incoming Cameron administration, will leave a hole that the government may struggle to fill. The Government’s aspirations to embed simplification directly into the policy making process of HM Treasury and HM Revenue & Customs is worthy, but without a separate organisation to reinforce this need, there is a risk that simplification will be low on the list of priorities of policy makers.
“During its decade-long life, the OTS has prompted many policy discussions that would otherwise have been difficult to have, including on IR35. Following the abolition, many will be looking to government to continue to engage on the scope for reform, rather than having all such debate within the closed rooms of the Treasury.”
UK Mini-Budget and Construction: Big disappointment no stamp duty relief for downsizers
Following the mini-budget where the Chancellor confirmed a reduction in Stamp Duty, Brendan Sharkey, head of Construction and Real estate at MHA, says the Stamp Duty reduction is positive but it won’t have the impact it did during the pandemic:
“When it comes to Stamp Duty relief the help for first-time buyers is positive but it is very disappointing there was no specific relief for downsizers. Encouraging more people to downsize would free up more family-sized homes.
“Also, this Stamp Duty reduction won’t work as well as previous reductions made during the pandemic. In 2020 and 2021 people had savings and an incentive to move given we all had to spend more time at home. Today trying to stimulate the housing market is going to run head first into inflation and higher interest rates. In addition, the previous SDLT cut was a ‘holiday’, where there is a set window of time to benefit from the cut, whereas a permanent cut provides less of an incentive to act quickly. What we see in the market currently is that developers are still optimistic about future sales, they don’t need another incentive.
“Reforming and streamlining the planning system sounds like a good idea but the trouble is the government has said it has this ambition at many previous budgets and nothing ever happens. So the industry will believe this when it sees it.
Finally, the industry will always applaud the promise of more work, so the goal to speed up a series of infrastructure projects will boost confidence.”
Off-payroll working reforms
Tom Evennett, EY Head of Private Client, comments:
“Framed as a removal of a burden for businesses from April 2023, today the Chancellor announced the repeal of the IR35 changes from 2017 and 2021. These measures were originally intended to put the onus on businesses that were hiring workers via their own personal service company to conclude as to whether these workers should be considered to be employees (and operate withholding on payments) or consultants. The removal of these changes will put the responsibility of concluding upon their status back to the workers personal service company.
“This will remove some concerns for business on making this determination but could drive a rise in personal service companies being established with the expectation that the measure will cost the Exchequer more than £6bn over the next five years.”
A “noughty” Budget
Chris Sanger, EY’s Head of Tax Policy, comments on the emergency Budget:
“In many ways, today’s Budget was reminiscent of the Budgets of old, or at least the ‘noughties’ decade. Many of the measures were speculated on ahead of the speech, there were cuts to both income and corporation tax rates and there was a focus on growth. Indeed, the tax system will soon echo that of the noughties, with no additional (45p) rate of income tax, no off-payroll workers rules for employers and VAT-free shopping.
“So, whilst the Chancellor may have been focussing on the future, he may well have brought us back into the past.”
Emergency Budget: A Simplifying Statement?
Tom Evennett, EY Head of Private Client, comments on the Chancellor’s measures to simplify the personal tax system:
“The Chancellor has taken steps over the last two days to drive forward the Government’s desire to simplify the personal tax system for individuals. This has included the removal of a new tax charge (the Health and Social Care Levy), the removal of an income tax bracket (the additional 45% tax rate) and the reversal of the 1.25% increase to dividend tax rates from April 2023.
“However, in his Statement today the Chancellor did not tackle a number of the quirks that remain in the income tax, and indeed tax credit, system. These include the removal of the personal allowance, which occurs once individual income exceeds £100,000 resulting in 60% effective marginal tax rates, nor the perceived unfairness of the removal of child benefit where one parent earns more than £50,000 (rather than considering this on household income basis).
“The abolition the Office of Tax Simplification is somewhat counterintuitive to the desire to simplify the income tax system, but people will be hoping that a future Budget later in the year or in the spring of 2023 will be another opportunity for the Chancellor, with the Treasury’s help, to go further with the simplification agenda.”
Comment from Christy Wilson, tax associate at Katten Muchin Rosenman UK LLP, on various points of the mini-budget announced today:
- Corporation tax – It was widely publicised before the budget that the Chancellor was likely to announce that corporation tax will stay at 19% – so it’s no real surprise that he followed through with this. He mentioned that keeping corporation tax at 19% will mean that this is the lowest corporation tax rate of all the G20 countries and would likely encourage investment into the UK. But given that the current global momentum is shifting towards increasing corporation tax rates, low corporation tax doesn’t necessarily seem like something the Chancellor should be boasting about.
- Health and social care levy reversal, reduction in employer and employee NICs – This was a change that was announced yesterday, in anticipation of the budget. Liz Truss had also mentioned this as part of her mandate during the leadership contest and therefore this announcement was not much of a surprise either. Although, it was previously unclear as to whether this reduction would apply to employer’s NICs as well as employee’s, the budget has now clarified the position.
- SDLT reduction – Often amendments to SDLT rates are only temporary, whereas the changes announced today seem to be permanent. It was announced on Wednesday, that the government was considering changing SDLT rates but it was unclear what approach they would take. Given that the rhetoric around income tax prior to the budget had revolved around reducing the top rates of income tax, it was possible that the same approach would be taken in relation to SDLT, but in fact they have focused on first time buyer’s relief and increasing the tax-free portion of SDLT calculations.
- VAT-free shopping for overseas visitors – This already exists. The Chancellor was only announcing that the process for this is moving from paper receipts to an online system.
- New investment zones – The Chancellor announced that there would be ‘new investment zones’ which would encourage business through reductions in taxes (among other incentives). Some of the tax reductions mentioned included; 100% tax relief on qualifying plant and machinery, no business rates and no employer’s NICs on the first £50,000 of an employee’s salary. However, these ‘investment zones’ already exist in the form of freeports, which have the same tax benefits, and were introduced by the government in 2021. Previously, Liz Truss had discussed increasing the number of freeports in the UK – perhaps this is a better description of what the Chancellor actually proposed in the budget this morning.
VAT free shopping scheme combined with weakness of sterling will make UK shopping hub
Following the Mini Budget when Chancellor Kwasi Kwarteng unveiled a scheme for VAT free shopping for foreign visitors to the UK, Alison Horner, indirect tax partner at MHA, says the policy is a good one but potentially tricky to implement correctly as it involves a new digital system and HMRC’s record here is mixed:
“The Chancellor’s modern, digital, VAT-free shopping scheme will be a welcome boost for the high street especially with the relative weakness of sterling, which already makes the UK an attractive tourist destination. Until Brexit the UK, as part of the EU, did operate the Retail Export Scheme for non-EU visitors, so we’re not breaking new ground here. Delivering the scheme does entail a new digital scheme in Great Britain and modernising the existing scheme in Northern Ireland.
“Potentially the scheme could prove troublesome to implement. HMRC have been involved in many digital roll outs recently. We have to hope that delivery can be achieved in a relatively short time frame without some of the issues experienced in the bigger projects such as Making Tax Digital and the new Customs Declaration service.”
Jack of all trades, master of none
Katharine Arthur, Head of Private Client at haysmacintyre, comments, “The changes made in today’s “mini budget” (that was anything but mini) mark the third significant change to taxes and National Insurance this year. While this may seem odd, it is unsurprising given we have a new government trying to make good on its political promises amid a cost of living crisis. The changes to NI in particular, while they should be welcomed with open arms, will likely result in an increased administrative burden and logistical headache for businesses, but any attempt to ease pressures on individuals and businesses should be seen as a good thing, and the government clearly firmly believes it will contribute to an overall stimulation of the economy. “While it is vital to welcome help at all levels to ease the cost of living burden, it remains to be seen who will benefit the most from today’s changes. The government has seemingly taken a ‘kill all birds with one stone’ approach and with huge changes to income tax, NI and corporation tax, we can predict that most groups of society will, in some way, be affected by the statement. However, with the scrapping of the higher rate of income tax, the Opposition will highlight the significant savings for higher earners and big business. The government is facing a difficult balancing act in an unpredictable economy. Whether it pays off and they hit the mark with their targeting and timing is anyone’s guess. With inflation continuing to soar and the pound struggling against the dollar, only time will tell whether the changes have their intended outcome, and we see the growth required.”
Mini budget or massive U-Turn? Comment from accountancy firm HW Fisher on Chancellor’s mini budget
Jamie Morrison, Head of Tax at accountancy firm HW Fisher: “Mini budget or massive U-Turn? We’re only 6 months on since the last budget and there have been numerous changes and back peddling in today’s budget. The new Government has made political choices to make a mark. However, after years of overspending and £50bn worth of unfunded tax cuts, the debt won’t magically disappear. Expect bigger changes and further U-Turns in the next 12 months to address this.”
Reaction from HW Fisher on the National Insurance hike reversal – where will the money come from now?
Stevie Heafford, Partner at accountancy firm HW Fisher, says: “As predicted, the new Chancellor has reversed the 1.25% rise in National Insurance Contributions originally introduced by Rishi Sunak back in April. What is less expected is that these changes will come into effect from 6 November. While this is a speedy turnaround in policy, the overall impact is minimal. For someone earning £100k, the annual saving will be £1,092, however for someone earning £27,000, the saving will be £180 each year.
The Chancellor should address the bigger question here – the increase in National Insurance was intended to fund social care policies, where will the funds for that come from now? Expect to see potential increases elsewhere.”
The Chancellor puts his STAMP on the new Conservative government – Comments on changes to Stamp Duty from accountancy firm HW Fisher
Reaction from Jamie Morrison, Partner at accountancy firm HW Fisher on the Chancellor’s decision to cut Stamp Duty Land Tax.
“Slashing Stamp Duty will open up the UK property market to overseas investors. Given the strength of the dollar and dollar-linked currencies – expect a flood of overseas property investors. While this is a positive move for UK Inward Investment – bigger challenges with interest rates remain. For example, an 0.75% increase in interest rates would add over £1,250 to the yearly costs of servicing a £200,000 mortgage on that property. This is a rise that many won’t be able to afford.”