A rise in corporation tax of up to 3% and an extension of covid-related measures to support businesses until the release of lockdown are likely priorities in the Budget on 3 March
With less than a week to go until the Budget, accountants and business leaders are calling on the Chancellor, Rushi Sunak, to announce continued support for businesses to handle the fallout from the pandemic with full lockdown not set to end before 21 June.
Marvin Rust, managing director of the tax division of Marsal & Alvarez, said: ‘We need policies that cover at least the medium term to the end of this parliament, a pro-economic growth strategy to increase GDP growth and focus on industries where we are leading the world, such as biotech.
‘It would be good to see an enhancement of the R&D tax credit schemes, investment in infrastructure and in freeports, an important part of government policy after Brexit.’
A rise in corporation tax from the current 19% rate looks likely to be a key measure of the Budget, with a number of tax experts hinting that this could raise some revenues while only companies reporting profits would be affected.
Rust said: ‘On tax, there are likely to be changes in two areas. I think that corporation tax will rise to 21-22% and that should be hand in hand with taxes on profits on companies that have had a good covid, for example supermarkets as sales have gone up as people have been unable to go out during lockdown with hospitality closed.’
This view is echoed by John Cullinane, head of tax policy at the Chartered Institute of Taxation (CIOT) although he does not expect any rise to come into effect immediately.
Cullinane said: ‘On corporation tax, gradually there seems to be a view that this will be done in November. There is some talk of phasing in rate increases, but there doesn’t seem any point. If it rises, it is going to hit business investment. If a multinational is looking to invest in the UK, they will look at the corporation tax rate but will not be put off as long as rates are comparable with international rates. Most companies budget on the pre-tax basis so that is important to remember.’
Dan Robertson, corporate tax partner at RSM, said: ‘There has been a dramatic fall in corporation tax rates over the last 10 years, down from 28% since 2010. As the proportion of the total amount of tax, corporation tax represents 7.4% of the tax take. The Chancellor will clearly want to support businesses during the pandemic.’
CIOT is also calling for companies to be allowed to carry back losses for three years against profits taxed in the past to give them some breathing space during the recovery from the pandemic.
‘We think the cost of that would give companies relief and the prospect of paying their taxes back in future years,’ Cullinane said. ‘It would also be good to see the annual investment allowance increased – it would be a big incentive for smaller businesses, but the government has a terrible habit of having the annual investment allowance yo-yoing around. From a business point of view they want stability to benefit from the incentive effect. They really want a stable environment.’
The current annual investment allowance is due to end on 31 December, so any extension would be welcomed. Rust said: ‘This is key to investment in our country. We have a pretty slow amortisation rate of corporate expenditure and I would like to see some higher write-off rates, which would also encourage SMEs to invest.’
‘We need to see a roadmap out of covid; the unwind from furlough is still far from clear,’ said Rust. ‘Some staff who are currently furloughed will still not be able to return to work. There still needs to be a tie-up between the roadmap and impact on businesses, for example the Chancellor should look at additional business rates relief and some policies around some level of postponement of employers’ national insurance contributions (NICs) on new hires to promote the recovery of jobs, particularly to help younger workers.’
While the Chancellor has pumped billions into coronavirus support measures for business from loans to the furlough scheme and some support for the self-employed, there is overwhelming consensus for the government to enhance its covid-19 support while the country remains in lockdown. Current schemes are due to end on 30 April, leaving nearly two months where many businesses will be unable to function fully.
Cullinane said: ‘There are some significant gaps in the schemes. At the beginning people were impressed by the job retention scheme (JRS) and later the self employed income support scheme (SEISS) but these measures came at the expense of those excluded. The longer it has gone on, the move you have to question the approach, for example on directors of owner-managed businesses. If this is going on for another four months, you would want some extensions to include excluded groups, but you don’t get the impression that will happen.’
Concerns about covid-related support are widespread now the roadmap has been published.
Chris Bowles, director at accountancy firm Old Mill, said: ‘The third grant self-employed income support scheme (SEISS) grant ran from November 2020 to the end of January so, we are also anticipating news on the fourth SEISS grant, which may now plug the gaps by including those recently self-employed individuals excluded from previous grants. Sunak also appears to have a ‘blind spot’ (maybe deliberately) in terms of helping the directors of limited companies who will need to play an important role in driving the nation’s future growth in the recovery phase… so perhaps now is the time the bring them in from the cold?’
Aside from covid measures, there are also expectations that the Chancellor will provide more details on the freeport plan, which would see major investment opportunities.
'The freeports announcement is to be made in June, with freeports in place by the end of the year. The Chancellor is likely to give more details about the plans,' said Rust. 'This represents a huge amount of infrastructure which needs to be in place and it will create a lot of jobs.'
Stamp duty and property taxes
With the deadline for the end of the stamp duty land tax (SDLT) relief set to end on 31 March, there is increasing support for an extension of the relief to avoid a cliff edge and harm property sales. A three-month extension appears to be the most likely approach.
Chris Etherington, partner at RSM, said: 'If indeed the Chancellor follows this approach, it is a pragmatic and sensible step. When the SDLT holiday was introduced, the Chancellor was unlikely to have anticipated that the country would still be under strict lockdown at 31 March and the sudden withdrawal of the SDLT relief could have had a significant impact on the property market, with deals collapsing unnecessarily due to an artificial deadline set by the Treasury.
'Rather than risk a severe correction to the property market, we recommended an extension to safeguard any transactions already in progress or as a minimum, and a phased withdrawal of the relief. This latest step is welcome news to those already facing the stresses of moving home and eases the burden of those working in the property industry.’
Capital gains tax
Following the capital gains tax (CGT) review by the Office of Tax Simplification, there have been signs that the Chancellor may look to align CGT rates with income tax rates. However, despite extensive coverage of possible rate changes, this now looks unlikely as the OTS is still due to submit a second report on the tax reform, which appears to have been delayed.
Rust expects any announcements around CGT to address tax avoidance loopholes rather than wholesale reform.
‘We can expect to see some changes around the edges, what the government would call loopholes. Raising CGT rates in line with income tax rates would be a backward step and should not be introduced. It would be a mistake and would choke off investment by entrepreneurs,’ said Rust.
There are some concerns that the Chancellor could introduce a wealth tax, levying 1% on assets over £500,000 although there are a number of complexities on the assessment, while the high cost of property in the south of England could see many people drawn into the tax, with unintended consequences.
Higher rate child benefit charge
Another area in urgent need of reform is the higher rate child benefit charge which kicks in for earners over £50,000.
‘This tax year the charge is probably going to be affecting base rate taxpayers. As a minimum it should be kept ahead of personal allowances and the government ought to be consulting about a better way to claw it back. It complicates compliance and also affects pension entitlements when taxpayers opt out,’ Cullinane warned.
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