Extraordinary times call for an extraordinary Budget
Haines Watts responds to Chancellor’s 2021 Spring Budget
Chancellor Rishi Sunak has delivered the 2021 Spring Budget, a statement that was sensible and gives businesses reasonable certainty to plan ahead. The team at Haines Watts takes a look at what it means for business owners.
In his announcement in the Commons, Chancellor Rishi Sunak vowed to “protect the jobs and livelihoods of the British people”, referring to the position that the UK finds itself in. He described his priorities as, firstly, protecting people’s livelihoods and secondly, providing support for businesses to help them grow and innovate.
‘A sensible approach’
David Fort, Managing Partner of Haines Watts Manchester, said: “The Budget was a sensible approach in line with the reopening of the country. The slow withdrawal of business support over time and no immediate tax rises will be a relief to many of our clients.
“The Chancellor has also shown a real commitment to levelling up the North too and most importantly he has balanced the books without stifling the recovery. Now more than ever businesses need this certainty, so the support packages that were announced were a welcome surprise that will provide a lifeline to many. It will afford businesses the time to plan and prepare and get in better shape over the next two to three years.
In terms of a price to pay, I’d say through gritted teeth, it’s fair. It’s a decent trade-off and was definitely the right tone to set. The new 130% relief for capital expenditure is very welcome and this will accelerate innovation and investment.”
The Office for Budget Responsibility (OBR) forecast was that the economy is set to rebound thanks to rapid vaccine rollout, getting back to its pre-pandemic peak by the middle of next year. Generous tax incentives for business investment will stoke the recovery over the next two years.
Matthew Thorpe, Managing Partner of Haines Watts Hornchurch, said: “What our clients needed to have was certainty because owner-managers are very resilient and good at making decisions once they have the information and businesses definitely need to have a clear timeline of what to expect.
Hike in Corporation Tax
“However, while there were a number of positives in the extension of support measures, a lot of my clients will most likely be nervous about the hike in Corporation Tax further down the line. Owner managers have had the least support throughout this crisis. They haven’t been eligible for the self-employment grants and the fear is that their rebounding profits will be hit to make up for the shortfall.
“The downside is that a lot of businesses will be paying Corporation Tax just when they are trying to get back on their feet and that’s the bitter pill that businesses are going to have to swallow to help pay for all of this.”
Advice for business owners
While in the short term, there is some further support from the Government, my advice to business owners is:
- Try and make the right medium to long-term decisions for your business as best you can.
- Keep an eye on your efficiencies, your cash flow and the future of the business, don’t get too bogged down in the here and now.
- You need to still plan for the future. So, stay agile and flexible to move the business as and when things happen, so you can quickly react.
Responding to the Budget, Jonathan Scott, Tax Partner at Haines Watts, said the combined impact of the ‘super-deduction’ for business investments and also the prospect of a corporation tax rise in 2023 should encourage companies to loosen their purse strings over the next 24 months.
He said: “I think businesses will be looking to fill their boots over the next two years. The 130% tax super-deduction will be a major incentive to invest and we believe it will have the desired effect as companies will become more willing to make investments and we will see more cash moving around.
“Lots of companies have built up cash reserves during the pandemic and have only been cautious about investing because of the uncertainty ahead. The super-deduction will certainly help to remove that caution and we believe we will see a significant, and rapid, uplift in investment.
“Meanwhile, the prospect of the corporation tax rise from 19% to 25% in 2023 will focus minds. It’s a cleverly-staged approach – clearly done deliberately to encourage investment for growth and help boost the recovery.”
VAT cut will ‘boost consumer confidence’
Steve McCrindle, VAT Partner at Haines Watts, added that extending the VAT cut will stimulate the economy and help businesses to stay afloat, while, crucially, helping to boost consumer confidence.
He said: “I didn’t think Rishi would do anything revolutionary from a VAT point of view in this Budget - but extending the VAT reliefs that were in place during lockdown is a positive move.
“One thing the Government has already done (January 1st), which is of great benefit to UK businesses, is to scrap the old import VAT regime whereby HMRC charged VAT to importers which the importer then had to recover later on their VAT returns.
“That means anyone who has it set up right now uses postponed VAT accounting (PVA) and this is a massive cashflow boost to UK business, which has gone very much under the radar. I can see both short and longer term that the Government will bring in further VAT measures that will enable trade to flourish, without what it sees as the EU yoke.
“We’ve always been a trading nation and I think the Government wants us to return to being able to trade easily.”