Many of the measures in Chancellor George Osborne’s Summer Budget got a warm welcome from Bath business figures – particularly support for small businesses.
Dominic Bourquin, corporate tax partner at Bath accountancy firm Monahans, said the Budget had been good for business and had taken away some of the uncertainty for employers, business owners and investors.
“If you’re an entrepreneur looking for a bit more certainty, you’ve got good reason to have a smile on your face,” he said.
He singled out the fixing of the annual investment allowance permanently at £200,000 from next January – meaning companies can deduct the full value of certain equipment and machinery from their profits before tax is calculated rather than having to settle for tax relief over several years.
“That will be music to the ears of MDs considering investing heavily in plant and machinery where there had been uncertainty as to the level of the allowance from January,” he said.
Another bonus was the cut in corporation tax from 20% to 19% in 2017 and to 18% in 2020. “Although clearly we’ll have to wait and see what the net result to companies is once the National Living Wage is fully implemented in 2020, and employers are paying a mandatory minimum hourly rate of above £9.”
The changes to the taxation of dividends would affect a number of business owners who pay themselves through dividends from companies as it was cheaper than paying a salary. “But we will not know more until we have run the numbers. Either way these new measures will close the tax gap between dividends and salary,” he said.
The very significant announcement for Mr Bourquin was the one concerning pensions. A Green Paper is planned, which will look at the pension system in its entirety – and could be a gamechanger in terms of how people plan for later life, he said.
“It could also sound the death knell for tax relief on pensions altogether. It’s quite feasible that we could shift from the current employer/employee model with tax relief for contributions, to one very similar to the current ISA system instead.”
Malcolm Emery, partner and dual-qualified chartered tax adviser and solicitor at law firm Thrings, which an office in Bath, and said the Chancellor missed the opportunity to reduce the VAT rate of 20% – one of the highest in Europe.
“A flat rate reduction of 2.5% would have been a welcome relief to businesses since it is their customer base which is ultimately responsible for this cost at a time when the effects of the austerity measures put in place by the coalition government are still being felt,” he said.
However, he described the reduction in the rate of corporation tax rate as “clearly good news for business [which] will help companies rebuild their reserves and bolster their ability to reinvest”.
The relaxation in Sunday trading laws would also be welcomed by many businesses, he said, but added that some smaller retailers may be less enthusiastic given the increase in competition from supermarkets and other large retail outlets freed from the current Sunday trading constraints.
Jon Miles, tax director at Bath accountancy firm Richardson Swift, said fixing the annual investment allowance would be particularly welcomed by Bath’s retail and hospitality businesses.
“The 100% tax deduction for expenditure on plant and machinery has moved in different directions in recent years and was originally expected to drop dramatically at 1 January 2016 to £25,000,” he said.
“So the announcement that this will now go back up to £200,000 for the foreseeable future is welcome news, especially for retail and hospitality businesses in the area that have refit programmes or periodically require significant capital expenditure.
“It means that they can plan with more certainty without having to accelerate their capital spending plans by the end of this year.”
Restricting mortgage interest relief for buy-to-let property businesses to the basic rate of tax will affect wealthy landlords in Bath with larger property letting businesses, said Mr Miles.
Accountancy firm Bishop Fleming, which has a base in Bath, welcomed some Budget measures but drew up a list of five disappointments and also predicted that 300 pages will be added to the tax rules book.
Managing partner Matthew Lee said: “Many of George Osborne’s announcements were good news for the region’s owner-managed businesses, including the reduction in Corporation Tax, the freezing of fuel duty, confirmation of the region’s transport investment and the confirmation of a £200,000 annual investment allowance.
“However, there are five major points on which we were very disappointed.”
- Pensions
Having already reduced the maximum pension pot to £1m, Mr Osborne is now eroding tax relief on pension contributions. This is at total variance with the Government’s declared aim of getting more people to save for their retirement and is highly demotivating for higher earners.
- Business Rates
Having promised a long overdue ‘root-and-branch’ review, the Chancellor made no mention of business rates in his Budget statement. This will be a big disappointment to businesses of all sizes.
- Dividend payments
The announcement of a new tax on dividends is unwelcome, bringing with it yet more complexity in calculating an individual’s tax liability. The existing basis is simple to understand, but the new one will do little to raise additional income while making it difficult for people to understand what their liabilities will be.
- More – not less – tax complexity
Like a succession of chancellors, George Osborne has spoken about cutting tax complexity, but today’s Budget seemed to ignore all the recommendations from his own Office of Tax Simplification. Measures like the new Living wage rules (adding a new age-tier of 25-plus), the new dividend rules, and the new pension contribution rules, will all add to the complexity of UK tax. Right now, the rule-book has already grown to 6,000 pages: today’s announcements will add at least 300 pages. We have yet to see a 21st Century chancellor deliver on tax simplification, and reduce the number of pages in that rule book.
- Tax evasion vs avoidance and planning
Mr Osborne opened his statement with the claim that he'll capture £5bn from ‘tax evasion, avoidance, and planning’. Evasion is illegal: avoidance and planning are legal. Does the Chancellor understand the difference? Today’s Budget amends some of the avoidance and planning measures, like pension contributions and dividends, but does he really believe that taxpayers who plan their affairs are sitting on billions of pounds of unpaid tax?
“I heard nothing in the Budget to explain how he'll tackle the much bigger issue of international corporations that elude their fair share of tax,” said Mr Lee.
Paul Oldham, regional director at BGF (Business Growth Fund), which was set up to help the UK’s growing smaller and medium-sized firms, welcomed the Chancellor’s focus on regional growth.
“We know from talking to small and mid-sized businesses across the South West that confidence is up and that the landscape is ripe for growth. Empowering city regions to help businesses in key areas like skills, infrastructure and planning can help improve these conditions and build on the example of the Northern Powerhouse.”
Bonnie Dean, chief executive of Bristol & Bath Science Park, welcomed the specific references to investment in the South West in the Budget. She was pleased to hear of the Government’s acknowledgement of the continuing importance of investing in the science and technology sector.
She said: “It is positive that investment will be made in transport and key sectors such as defence and cyber security where the South West has a leading position.
“An allocation of up to £10M to the broadband programme in the region, focused on local projects delivering speeds of 100mbps and above is also a boost for enterprise.”
She also welcomed the regional science and innovation audits, which will involve working with businesses, universities, local enterprise partnerships (LEPs) and cities to map science and innovation strengths and to identify potential areas of strategic focus.
“Technologies are emerging and converging very rapidly and it’s a global race to keep and attract businesses so that the new industries they create are developed in the UK for the benefit of the country.
“Fortunately the UK has a leading position based on the strength and quality of our research base. It is essential that this is recognised in the Spending Review.”
KPMG South West tax partner Julian Cockwell said fixing the annual investment allowance at £200,000 would encourage small and medium-sized businesses to invest in new plant and equipment and could help towards plugging the UK’s yawning productivity gap.
“The Annual Investment Allowance has been up and down like a yo-yo over the last few years, so today’s announcement gives much-needed certainty,” he said.
“Britain’s makers, doers and growers will see particular benefit from this. So often, new equipment and technology is the key to improved productivity for our manufacturers, retailers and agricultural businesses, so stimulating investment from them will go a long way to helping address the UK’s productivity gap.”
Accountancy firm EY’s South West tax partner Karen Kirkwood said businesses had been left with mixed messages from the Budget.
“The promise of cuts in corporation tax rate from 2017/18 was tempered by large business being the biggest funder of the Chancellors’ Budget through the requirement to pay taxes three months earlier. This measure alone gave the Chancellor almost £4.5bn in 2017-18 and echoes the change that Gordon Brown introduced in his first Budget back in 1997.
“On a positive note, this cashflow raid also allowed the Chancellor to fund the rise in the annual investment allowance to £200,000.”
Sharon Omer-Kaye, accountancy firm Baker Tilly’s South West tax partner, said the Budget had been far more significant than expected.
“[Chancellor George Osborne] seems to have shown some creativity in navigating around the triple lock, finding numerous areas for generating revenues while announcing some eye-catching measures such as the new National Living Wage, designed to generate a feelgood factor about progress in the economy.
“In addition to the heavily trailed changes to the inheritance tax threshold which increases to up to £1m for a couple over their lifetime reflecting the value of a family home, the other significant announcement concerned buy to let property owners, who will be adversely affected by mortgage interest being abolished.”
She said corporate businesses were set to benefit from the further reductions in corporation tax although this could be offset by higher costs for employers such as meeting the apprenticeship levy and the Living Wage requirement.
“There will also be a review of how dividends are taxed, the outcome of which seems likely to be that most recipients will be no worse off, and may actually be better off. However recipients of large dividends from private businesses and holders of large investment portfolios may well stand to lose out,” she said.
