Rishi Sunak’s Budget: An instant response
AccountingWEB columnist Philip Fisher delivers an immediate response to Rishi Sunak's Budget Speech.
Only last month, this writer suggested that there was little point in holding a Budget this March, given current economic uncertainty.
Having heard Rishi Sunak speak, that view still seems reasonable. In particular, almost everything of interest had been leaked, sometimes inadvertently, by the Chancellor and his colleagues in the run-up to his 50 minutes in the limelight.
The most common word heard this time around was “honest”. Time will tell as to whether its use was – well – honest.
Furlough is continuing until September, albeit with top-up employer contributions demanded during the last three months. The surprise here is that, given Boris Johnson’s irreversible drive towards freedom on 21 June, this support and several others are continuing for those extra three months.
A mirrored version is once again extended to the self-employed, although that will be restricted for the more successful, whose profits have dipped by less than 30%, will receive only 30% rather than 80% of earnings within the previous limits.
More positively, those that started up in trade during the year to March 2021 will finally be allowed to benefit. However, they will still have lost out on the first three tranches of support. As such, this represents an admission of unfairness without any restitution. A much more reasonable solution would have been to pro-rate the last two payments and effectively extend them back to make up the shortfall.
Many of our clients and even our own businesses could choose to benefit from a new recovery loan scheme. Up until the end of 2021, this will offer loans of between £25,000 and £10m, presumably on preferential terms. However, these will only be 80% guaranteed and therefore many banks may be reluctant to advance further sums to businesses that they deem to be risky. Others with massive debts hanging around their next already might be reluctant to take on even greater exposure.
Thankfully, the business rates holiday is extended until June, after which a two-thirds discount up to maximum of £2m will be offered through to the end of 2021.
Similarly, the 5% VAT rate for hospitality and tourism businesses continues until September 2021 following which the rate will increase to 12½% for another 18 months.
The 0% rate of stamp duty for property sales of up to £500,000 will continue until June of this year then the limit will reduce to £250,000 for a further three months.
As a result of the “huge challenges for our public finances” no fiscal rules were announced, rather negating the purpose of a Budget, particularly in these difficult times.
Personal tax freeze
There was also relatively little action on the tax front, particularly in the short-term.
The biggest shock, had it not been announced in all of the papers over the weekend, is the decision to freeze both the personal allowance and the higher rate threshold until April 2026.
While this will not hit the poorest in society, ie those with earnings or profits of under £12,500, it will have a significant regressive effect on those paying basic rate income tax.
The damage that this does will only become apparent when we discover what happens to the rate of inflation during the period of the freeze.
Strangely, later in his speech, the Chancellor boasted that he was “not increasing rates of tax on working people”. It doesn’t take a genius to see through this set of smoke and mirrors, since working people will be paying more tax, even if the rates are no higher.
A number of other limits and thresholds also to be frozen until March 2026, including those relating to capital gains tax and pensions.
Anyone looking for the long-tailed announcement that capital gains tax were going to be unified with those of income tax will need to keep searching for a lot longer. Frankly, this was never on the cards but made some good newspaper headlines and probably generated healthy fees for many proactive accountancy practices.
Corporation tax hike
The BBC commentary team was cynical about what sounds like the least business-friendly announcement of them all. If it ever comes to pass, the headline corporation tax rate will rise to 25% in April 2023 for those making profits over £250,000, tapering down to 19% at £50,000.
The suggestion from the BBC’s finest was that this is a set-up designed to make Mr Sunak look good a couple of years hence when he doesn’t implement the increase or limits it.
Against that, there are a couple of really juicy incentives the first of which could get finance directors and their accountants thinking strategically very soon.
The corporation tax loss relief rules are to be changed so that companies can carry back a maximum of £2m for up to three years. Given the disastrous economic climate over the last 12 months, that might be welcome in theory but the affected parties might decide that rather than getting relief quickly through carry-back they should let the losses ride until the 25% rate comes into effect (if it does).
It wasn’t immediately apparent that there is going to be any parallel relief for those running businesses that are not subject to corporation tax – bad news for any loss-making partnerships. One hopes that this will not sour the day for any accountants, since we are always canny enough to make profits.
The smug smile reached Cheshire Cat proportions with the next announcement, perhaps just on the basis that it contained a rare piece of information that had not previously been leaked.
This was the news that “companies” but other businesses too, will be able to claim a super deduction of 130% on capital expenditure on plant and machinery over the next two years. What we used to call a first-year allowance in the old days should more than mitigate the corporation tax rise for many businesses and it will be interesting to see whether this kickstarts the economy in the way that the Chancellor hopes.
The problem might be that many companies will have such large losses to carry both back and forward that increasing them will have little appeal, while many struggling businesses will not have a penny available to spend on capital projects regardless of the incentives.
Hidden away was an announcement that small businesses will be able to get a grant of up to 50% for software purchases. Many readers might find that to be one of the most worthwhile and practical takeaways from this speech, both for their own operations and those of their clients.
HMRC is to beef itself up with a Covid fraud task force. Given that so many of the frauds took place almost a year ago, this welcome news could turn out to be yet another example of shutting stable doors long after horses have bolted.
Specialists in the respective fields will be pleased and/or anxious at the news of reviews to the Research and Development and Enterprise Management Incentives arrangements but should probably not expect any concrete action to result in the next couple of years.
Finally, with a repeat of the Cheshire Cat grin, the lunchtime lecture closed with a suggestion that freeports across the UK, including eight already designated in England will yield massive tax advantages to help us get one over on those Europeans.
All in all, a great deal of hot air but not all that much substance, at least in the short-term.