Nick Latimer, tax partner at national audit, tax, advisory and risk firm Crowe
Chancellor’s measured approach welcomed: Walking the tightrope of freezing allowances without more draconian measures will help businesses get back on their feet
“I was pleasantly surprised at the measured approach to tax raising while providing more support to those who have suffered through COVID, and the additional incentives given for those investing for the future. Overall, it was a Budget that supports the economy while signalling the need to start collecting taxes to pay off our debts. We should expect more measures to follow depending on how the economy performs against the OBR and red book predictions. As long as interest rates remain low, the government may be able to walk this tightrope of freezing allowances without more draconian measures.
The extension of the SDLT holiday to the end of June, with a less generous extension to the end of September, will provide a further boost to the residential property market and much-needed relief for those tied up in the conveyancing process. The 130% super deduction for business investment in assets that qualify for plant and machinery allowances, and 50% for special rate assets such as electrical and water systems, will also encourage further investment at a time when the most important thing is for our economy to be first out of the blocks post-COVID. The ability to carry back losses three years will also help those clients impacted during COVID to obtain cash to help them get back on their feet.”
Tom Elliott, head of private clients, at national audit, tax, advisory and risk firm Crowe
Mixed news for investors
Investors will welcome the news that there is no sign of an appetite to raise the rate of Capital Gains Tax in the Chancellor’s speech, with the headline increase being for Corporation Tax from 19% to 25% from April 2023. However, higher tax bills for UK companies will inevitably lead to a reduction in the amount of dividends being paid out to shareholders. It will be interesting to see how this plays out for investors, both in the level of investors’ income and on valuations generally.
Rebecca Durrant, tax partner at national audit, tax, advisory and risk firm Crowe
The Chancellor has revealed his “three part plan” to lead us out of the pandemic and set the country on the road to recovery.
He committed to protect jobs and businesses and there was some good news for hospitality and retail with extension to furlough, grants, business rates and VAT reductions which should help rejuvenation.
For property investors, the expected extension to the SDLT holiday until June for properties up to £500k and to September for properties up to £250,000 was also welcome. These measures will no doubt ensure that the current boost to the property market continues.
There was no real news for private clients as the Chancellor stuck to his triple tax lock, although the freezing of personal allowances and higher rate tax brackets at 2021/22 rates (£12,570 and £50,270) will increase the tax take. All other rate bands such as inheritance tax and capital gains tax were frozen.
The biggest impact will be for business owners; while we expected the corporation tax rate to increase, a rate of 25% from 2023 was a real surprise. This will affect the ability for business owners to withdraw cash from their businesses so budgeting for the future will be important.
The rate of 19% on first £50,000 profits will still apply, with rates tapered up to £250,000 welcome news for owner managers with smaller businesses.
As expected any big news around major tax reform for capital gains tax, inheritance tax and any income tax rises has yet to be seen. Private clients will need to wait a while longer before we have any clarity here.
Jeremy Cooper, audit and advisory partner at national audit, tax, advisory and risk firm Crowe
A Budget welcomed by the retail sector, but State Aid restrictions will limit its impact
“With non-essential retail stores closed, and not set to reopen until 12 April 2021 at the earliest, those retailers were desperate for some support from the Chancellor in the Budget. There was certainly some positive news with the extension of the Coronavirus Job Retention Scheme to September 2021 and the additional 3 months rates relief for retailers but will it be enough for struggling retailers?
The announcement of a £5billion package of support for Retail, Hospitality and Leisure sectors at the weekend is to be welcomed but without a corresponding increase in the State Aid limits, many of the hardest hit retailers will be unable to benefit from this support.
Sadly there has been no mention today of an increase in these limits so I fear that we will see further store closures and job losses on the High Street as a result. The increase in the living wage, whilst commendable, will further exacerbate the job losses in Retail.
Laurence Field, corporate tax partner at national audit, tax, advisory and risk firm Crowe
Two’s company for Corporation Tax
“It looks like ‘two’s company’ as corporate tax rates are to begin with a 2 for the first time since 2016.
The Chancellor has abandoned the decade-long plan of reducing the headline rate of corporation tax. The tax rate on large companies will rise to 25% from 2023. The logic of the previous approach was that a low tax rate would encourage investment, investment creates jobs and jobs result in the real drivers of tax – PAYE and NIC. Wages in turn get spent and drive VAT receipts.”
What does abandoning the CT reductions approach mean?
“The headline rate doesn’t really matter that much. Yield is what really matters. It is driven by the granting and withdrawal of reliefs from that headline rate. More reliefs are a tax giveaway, while fewer reliefs are stealth taxes. According to the OECD, in 2018 the UK got only 8% of its tax revenues from corporation tax at a rate of 19%. Germany and France, with headline rates of 33% and 30% raised only 4.6% and 5.6% of their tax revenues from companies. The headline rates mean little – though we know multinational CEOs check it before embarking on big investment projects. The increased reliefs available for investment, including the 130% super deduction for investment in innovation, should go some way to driving down the effective rate in the short term. The ability to carry back losses to earlier periods to receive repayments of tax will reduce the effective rate of tax and improve cash flow – but both will have little impact on the post-2023 landscape. What the Chancellor gives, he can also take away – so don’t be surprised to see these reliefs reduced as tax rates go up.
Remember, corporation tax is a tax on investment returns and investments tend to be long-term – so companies will need to revaluate the projects they have at hand and determine whether the after tax rate of return post-2023 is still acceptable. If it isn’t, the project needs to be reconfigured, abandoned or reviewed.”
Proper reform still to come
“The bad news is that this isn’t the end. On 23 March the Chancellor is holding a ‘tax day’ where he will set out his plans for the tax system over the next few years. We can be pretty sure that the real proposals for a potential reform of the UK tax system will be buried in there. Corporate management should take a long-term view – don’t just fall for today’s headlines about the Budget but wait and see what comes out of ‘tax day’ – that will give the real flavour of how companies are to be taxed in the future.
The economist Samuel Brittan said – ‘Only individuals pay tax, companies are just a convenient place to collect it’. Any increase in tax for companies will actually impact customers, employees and investors. That’s why the reversal of the tax reduction policy needed to be carefully calibrated. Superficially it is good politics to tax companies as they do not have a vote, only lobbying power. The impact of that tax will be felt more broadly throughout the economy – and that’s why the Chancellor has decided to tread carefully today.
We now have a spend and tax government – quite different from the tax and spend governments of the past. The Chancellor has been trying to answer the question of who pays for £407bn of coronavirus spending and when. The answer is everyone, but not just now.
Increasing personal allowances and then freezing them, deferring an increase in tax on large companies until 2023 but allowing enhanced loss carry backs and super deductions for investment in innovation now – all suggest the Chancellor recognises that there is little point in taxing a struggling economy today.
But if it can start growing quickly in the next year or so, there will be more income and more profits to tax in later years. The political judgement is that the impact of the increases won’t be felt too much in the run-up to the next general election.
The word ‘honesty’ was used repeatedly. I suspect this was because by not increasing the headline rates of VAT, Income Tax and National Insurance, but finding other ways of raising cash, often delayed until the future – the classic way of raising stealth taxes, he wants to avoid accusations of being too stealthy.
