The Chancellor delivered a long-term plan, but message is clear that businesses must back their own growth plans and not rely on handouts.
In the face of worsening economic growth forecasts, Chancellor Jeremy Hunt has traversed the fiscal tightrope, delivering a Statement that will help to restore a sense of stability while reminding businesses that they must back their own growth plans and not rely on handouts.
Richard Godmon, tax partner at accountancy firm, Menzies LLP, said, “The Chancellor has delivered a Statement that demonstrates long-term thinking while encouraging businesses to take advantage of structural changes in the form of infrastructure investment and other funding packages to back their own growth plans.
“It is disappointing that he didn’t reveal what will happen to the Energy Price Guarantee for business beyond the start of April, but he did at least commit to publishing a ‘new targeted approach’ to support business in the near future.”
The Statement contained some significant announcements regarding the Government’s commitment to infrastructure spending, with plans to go ahead with the £600 billion investment, as previously announced, in the next five years. The budget for R&D spending also remains unchanged.
Godmon added, “News that large-scale infrastructure developments will go ahead as planned, combined with a commitment to ringfence R&D funding too, means businesses have an opportunity to position themselves for growth – becoming part of the Government’s vision to ‘create the world’s next Silicon Valley’.”
Business rates
Godmon said, “The Chancellor confirmed that the revaluation of business properties will go ahead next year, as planned, to reflect changes in property values. However, this will be implemented along with a package of support over the next five years to help businesses transition to their new bills.
“The increase in rates is needed to help local authorities continue to provide services. However, businesses that are already struggling with inflationary price rises, such as those in the retail and hospitality and leisure sectors, will receive targeted support.”
Changes to R&D tax incentives
The Chancellor announced plans to restructure tax breaks for businesses investing in research and development, with an increase in the competitiveness of the Research and Development Expenditure Credit (RDEC) scheme for larger businesses, at the expense of reduced rates for the SME scheme. Overall, public spending in this area will remain unchanged, reflecting the Government’s recognition of the importance of R&D in boosting growth.
Anthony Lalsing, R&D partner at accountancy firm, Menzies LLP, said, “The Chancellor has responded to recent criticism of the SME scheme and the number of erroneous or spurious claims submitted by seeking to reduce the generosity of the scheme.
“The Statement also confirmed that previously announced measures to target abuse and improve compliance would go ahead, and it is disappointing that the Government has not given these the opportunity to take effect, as those who will most keenly feel the impact of the changes will be innovative start-ups and growing businesses.”
Electric company car benefit
Andrew Brookes, senior tax manager, employer tax solutions at Menzies LLP, said, “Company car benefit for electric cars is to increase by 1% per year from April 2025. It currently stands at 2% of the list price of the electric car when new and will still be regarded as an attractive incentive for businesses planning a shift to green fleets for a number of years.
“For a second-hand EV bought for £50,000, with an original list price of £100,000, the benefit is currently £2,000. This will increase to £3,000 from April 2025 and £4,000 from April 2026.”
National Living Wage increase
The National Living Wage is to rise by 9.7% from April to an hourly rate of £10.42 – this equates to an annual pay rise of more than £1,600 per annum for full-time workers.
Andrew Brookes, senior tax manager, employer tax solutions at Menzies LLP, said, “This is going to be hard for businesses to stomach, particularly those that rely on non-skilled, low-paid workers, such as those in the hospitality and leisure sector and retail sectors. At a time when all costs are rising rapidly, this could be the straw that breaks the camel’s back for some firms.”
Income Tax: Reduction in top rate tax threshold
The Chancellor has announced plans to reduce the threshold for the top rate of income tax (otherwise known as the additional rate) from £150,000 to £125,140 with effect from 6 April 2023.
Craig Hughes, the private client tax partner at accountancy firm, Menzies LLP, said, “This will drag a significant number of people from the 40p tax rate into the 45p tax rate, and those with income of more than £150,000 will be paying an extra £1,243 of tax per annum. This will be painful for middle earners.
“Where it is possible to do so, those with income between £125,140 to £150,000 could consider accelerating remuneration to the current period – for example, bringing forward bonus payments or paying dividends sooner. Special attention may be needed here for dividends as the current rate for dividends is higher than it will be from 6 April 2023.”
Income Tax: Freezing of basic and higher tax bands
Personal allowances for basic and higher rate taxpayers have been frozen until April 2028, which will bring more people into the income tax net as earnings rise. It also means more people will become liable for higher marginal tax rates than they are currently.
Hughes commented, “This will increase taxes for the masses, regardless of their earnings.”
Capital Gains Tax
The Chancellor has confirmed that CGT allowances will be cut from £12,300 to £6,000 next year and £3,000 from April 2024.
Hughes commented, “This will increase the tax take from CGT significantly and will affect people selling second homes or shares from April next year. It will also mean that more taxpayers will be required to declare disposals to HMRC.
“However, the Chancellor has not increased the headline CGT rate, which will remain at 20% – this is considered a competitive rate when compared to similar schemes elsewhere in the world.”
This article was first published on Menzies LLP’s website here.
Menzies is a top 25 leading firm of accountants, finance and business advisors that operate out of a network of offices across Surrey, Hampshire and London, providing our clients with easy access and local knowledge. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, Menzies has over 400 employees and an annual turnover of more than £40m.
