What was announced?
If a week can be a long time in politics or business, then two years can seem like millenia.
It was symbolic that the Chancellor Rishi Sunak delivered his Spring economic statement two years to the day that the first lockdowns were announced to combat the Covid-19 pandemic and nobody could have imagined the large and small ramifications of these events that businesses and individuals are still living with.
As he began his speech yesterday, he started with the latest report from the Office of Budget Responsibility (OBR) which reports twice yearly on the state of the UK economy and their news wasn’t encouraging.
They calculated that inflation, the rate that prices rise, had risen to 6.2% which is the highest figure in over 30 years
Inflation is also expected to rise even higher this year as energy bills are set to sharply increase from April 1st and again in October.
While the headline figures from the statement will have more impact on employees rather than employers, there were several announcements that could have implications within the next few months and from the next official Budget announcement scheduled for October.
The Chancellor acknowledged that “something is not working” with UK business investment in productivity and would address this with the following measures:-
- Tax rates on business investment would be cut in the autumn budget with several options being considered including:
- Increasing the annual investment allowance permanently
- Increase writing down allowances for main rate assets from 18% to 20%
- Increase writing down allowances for special rate assets from 6% to 8%
- Introduce a first year allowance of a deduction and further deduction in the first year of expenditure with standard writing down rates applying after
- Introduce an additional first year allowance of 20% on top of standard writing down allowances on 100% of the initial cost over subsequent years
- Introduce full expensing – allowing businesses to write off the costs of qualifying investment in one go
- There would be a review to look at changes to research & development tax credits with a view to increasing the generosity of reliefs for business investment to boost UK productivity. This includes:
- From April 2023 all cloud computing costs associated with R&D including storage will qualify for relief
- Allowing overseas R&D activities to qualify is certain material factors required are not present in the UK and that regulatory or other legal requirements means these activities cannot take place within the UK.
- The definition of R&D for the purposes of tax relief will also be expanded
- There would also be reviews on private sector employment training and the apprenticeship levy as the Chancellor noted that UK employers spend “just half the European average on training their employees”. He said the government “recognises that employers have frustrations with the current apprenticeship levy system” and is looking at how more flexible apprenticeship training models can be supported.
- In two weeks time there would be an increase in the employment allowance (which gives relief to small businesses National Insurance payments) for small businesses from £4,000 to £5,000
- There would be a 50% discount in business rates for companies in the retail, hospitality and leisure sectors up to £110,000 to further combat losses incurred through reduced tourism and the combined effects of multiple lockdowns
- Already confirmed in The Finance Act 2022 to take place in April include:
- 1.25% increase in NICs and dividends tax in 2022/23
- Freeze on personal tax thresholds until 2025/26
- Making Tax Digital scheme compulsory for all VAT-registered businesses not already required to operate the system
There was also a 5p immediate reduction in fuel duty which will be of direct benefit to the transportation sector primarily.
Some sectors will see more benefits than others
Stephen Phipson, the chief executive of Make UK, the lobby group of manufacturers, was among the first to register their concerns at a perceived lack of support for their immediate concerns.
He said: “The lack of action on energy costs for business is especially hard to fathom.
“Government cannot escape the fact that manufacturers are facing eye-watering cost increases that are pushing many people towards a tipping point and companies would have been looking for substantial business support measures to help alleviate these.”
This is against the backdrop of new CBI research which showed that 82% of manufacturers they surveyed this month was planning to raise their prices this year
Shevaun Havilant, Director General of the British Chambers of Commerce, said: “The Spring statement falls short of the action businesses needed to see. While there are some positive announcements that firms will welcome, it did not fundamentally address the huge cost pressures they are facing.”
She cited the increased employment allowance as a small victory but contrasted it with the fuel duty cut being “just a drop in the ocean compared to the larger tsunami of surging costs that is bearing down on firms and households.”
Time to take action now
So what can a business do if they were left disappointed by the measures addressed in the statement or if they benefited but there are still severe problems to be overcome?
Our initial consultation will allow us to further probe the situation with a company and illuminate some areas where immediate positive action could be taken and others where they could be improved in the medium and longer term.
It might also be the case that the issues could be insurmountable in which case we can advise on the quickest and easiest way to close or liquidate the company – even if it has outstanding debts it can’t fully repay including bounce back loans.
Whatever the situation, and every business has a different outlook, the best way to improving it is always by getting in touch with us as a first step.