Today, as what he termed ‘honest and fair’ measures to balance the public finances, the Chancellor pledged billions to continue to support businesses and families through the pandemic. He also stressed the importance of encouraging investment, especially in innovation, in order to build the UK’s future economy.
This budget signalled a reprieve for business owners and angel investors with capital gains tax rates and key tax relief left untouched, but there remain concerns.
Corporation tax – Back to the Future
Dan Robertson, partner at RSM, comments: ‘It was Back to the Future on corporation tax. Rewind the clock 10 years and we had a corporate tax rate in the mid-20s, a 3-year loss carry back regime, and a small companies rate of tax. The Chancellor has resurrected all of these policy areas today but has given a couple of years before the full impact is felt. He has also spiced things up with additional relief for corporate investment, and there are the first signs of post Brexit "fiscal freedom" with the Chancellor signalling a consultation on R&D which is likely to be focused on keeping the UK at the forefront of global innovation.
Peter Graham, partner at RSM, comments: ‘The 130 per cent super-deduction for expenditure on plant and machinery was a welcome if not surprising announcement in the budget. This is a very bold step by The Chancellor to incentivise UK companies to make the necessary capital invest to help businesses and the economy grow over the next two years.’
The timing of the deduction should serve as a counter to the fact that corporation tax will rise from 1 April 2023: companies that might otherwise defer investment until then to benefit from tax deductions at higher rates will not lose out by moving sooner, and in fact are likely to benefit more.
VAT – welcome relief for hospitality
The government has extended the temporary reduced rate of VAT that is currently in place for hospitality and leisure businesses, a sector that has been one of the hardest hit by the coronavirus emergency.
Philip Munn, partner at RSM, comments: ‘As expected, the Chancellor has decided to extend the temporary reduced rate, which will remain at 5 per cent until 30 September 2021. The surprise is that this will then be followed by an interim VAT rate of 12.5 per cent which will apply from 1 October 2021 and run until 31 March 2022 when the 20 per cent rate is expected to be reinstated. This is very welcome news for leisure and hospitality businesses who will continue to benefit during what is likely to be a long and drawn out reopening of the industry from the government’s planned date of 21 June 2021 but is expected to cost the Exchequer over £4.7billion and could create systems challenges for some businesses that have another VAT rate to apply. There was also good news for pubs and restaurants with a freeze on alcohol duties.’
Stamp Duty Land Tax (SDLT) measures welcome
Chris Etherington, partner at RSM, comments: ‘As widely expected, the SDLT holiday has been extended to 30 June, giving a three-month reprieve to those who have been sweating on getting their transactions completed by 31 March. Whilst an extension will be welcome news to buyers, there will be concerns from those working in the property market that the Chancellor’s decision to extend the period simply kicks the problem of a cliff-edge deadline down the road.
‘From 30 June onwards, there will be a tapering of the SDLT holiday so it only extends to property purchases up to £250,000 until 30 September. That’s a surprise measure and the logic behind that isn’t immediately clear. It’s welcome news for regions outside of the South East and London where average house prices are under £250k and perhaps a giveaway directed at ‘red wall’ voters. The exodus of people moving from London to the regions looks set to continue.’
Major lifeline extensions welcome, but absence of VAT deferral a big concern
Gareth Harris, partner at RSM, comments: ‘Whilst major lifelines have been extended, the notable absence of any further extension to VAT deferral will be a big concern for many businesses. For those with large arrears those payments, without any other action, are going to kick in from April 2021 and will hit hard for 11 months.’