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    Tag: Mini-Budget

    The Growth Plan – an Update  

    Posted on by Laura Bannan

    On 14 October, as an important deadline loomed for Bank of England support of the government bond markets to expire, the government’s political turmoil ratcheted up as the fallout from the ‘fiscal event’ of 23 September claimed its first scalp.

     

    A new Chancellor

    Jeremy Hunt replaced Kwasi Kwarteng as Chancellor, making him the fourth Chancellor in as many months.

    Chris Philp, the Chief Secretary to the Treasury, was also sacked. He was replaced by Ed Argar, formerly the Paymaster General and Minister to the Cabinet Office.

     

    Corporation tax

    At a press conference (the House of Commons was not sitting), the Prime Minister announced that the planned reversal of the increase to corporation tax would not go ahead. The rise from April 2023 to a main rate of 25%, with reduced rates for companies with profits below £250,000, was legislated for in the Finance Act 2021.

    31 October remains the date when the Medium-Term Fiscal Plan will be announced. The Prime Minister said that the £18bn tax savings from the corporation tax reversal was a ‘down payment’ on this strategy. That still leaves a shortfall of about £24bn in 2026/27 stemming from September’s announcement.

    Spending, said Liz Truss, would grow ‘less rapidly than previously planned’.

     

    Timetable of reversals

    Today’s announcements were the culmination of a series of statements and retractions over the last few weeks:

    • On 26 September the previous Chancellor, Kwasi Kwarteng issued an ‘Update on Growth Plan Implementation’ revealing that his Medium-Term Fiscal Plan would be presented on 23 November, alongside a forecast from the Office for Budget Responsibility (OBR).

     

    • The planned abolition of the 45% tax rate announced in September’s ‘mini-Budget’ survived just ten days before being reversed on 3 October.

     

    • Seven days later, on 10 October, the Treasury announced that the Chancellor would bring forward the announcement of his Medium-Term Fiscal Plan from 23 November to 31 October.

     

    This last date for the calendar is one of the surviving elements of Kwasi Kwarteng’s planning which Jeremy Hunt will now take forward.

     

    The next few weeks will be very interesting for many businesses, and individuals, and upcoming announcements may cause you to rethink your short- and medium-term plans. We will be sure to keep our clients and contacts updated as further detail from the government emerges.

     

    Liz Truss announces increase in corporation tax rate to 25% from 1 April 2023

    Posted on by Laura Bannan

    Today (14 October 2022) after much speculation the Prime Minister has announced that the previously cancelled planned increase in corporation tax from 19% to 25% is now back in place.

    The increase in the corporation tax rate will take effect from 1 April 2023.  That means companies with anything other than a 31 March year end will face a blended tax rate for the accounting period straddling 1 April 2023 as follows:

     

    Accounting period endedTaxable profits < £50,000Taxable profits > £250,000Marginal rate between £50,000 & £250,000
    30 June 202319%20.5%20.875%
    30 September 202319%22%22.75%
    31 December 202319%23.5%24.625%
    31 March 2024 onwards19%25%26.5%

     

    There are things that can be done to minimise the impact of this increase; however, it is necessary to bear in mind that most of these options do result in tax payments being made earlier than they would be if no planning was done. Companies need to weigh up their cash position against their desire to minimise their tax liabilities.

    Options include:

    • If your year end is around the date of rate change, consider whether you can influence when profits or gains will arise. You may prefer them to arise earlier at the lower rate.
    • If you will have a straddle period and have made large profits early in the year, consider shortening the year-end to 31 March so that all your profits are taxed at 19%.
    • Brought forward tax losses that have arisen since April 2017 do not need to be utilised in a particular accounting period, they can be carried forward and used in a later accounting period to save tax at a rate of 25% rather than 19%.
    • Loss making companies may wish to carry losses forwards to use against future profits so saving tax at a rate of 25% rather than carrying a loss back to generate a repayment of tax at 19%.
    • The super deduction will also end on 31 March 2023. As the super deduction effectively gives tax relief at 25% there is little benefit to bringing forward capital expenditure. However, larger companies or groups with significant capital expenditure that is expected to exceed the annual investment allowance limit of £1 million should consider bringing forward qualifying capital expenditure to make use of the super deduction which, unlike the annual investment allowance, has no limit on the amount of expenditure that is claimed in an accounting period.
    • The awarding of bonuses or payment of pension contributions could be delayed until a later date to save tax at the higher rate.
    • If substantial capital assets are to be sold and trigger a capital gain, consider whether to exchange contracts and crystallise the gain pre or post 31 March 2023.
    • Property development companies that have a known sale of a development post 31 March 2023 could consider selling the development to a group company before 31 March and paying the corporation tax on the development profit at 19%. The sale post year end would then have a minimal profit taxable at 25%. This planning would only work in very specific circumstances and companies would need to be sure that the final sale will go ahead.
    • Instalments – large companies making instalment payments based on their expected tax liability for straddle periods will need to consider increasing their payments if they wish to avoid interest charges. The interest rate on instalment payments now stands at 3.25%.

     

    Get in touch

    The above are only a a limited number of outline ideas and you should seek specific advice tailored to your circumstances before taking or refraining from any action. For more information,  please contact Claire Astley by clicking on the button below.

    Mini-Budget Response: Jane Parry, managing partner of PM+M: “The jury seems to be out on whether Trussian economics have much validity.”

    Posted on by Katie Heaton

    Following the Chancellor’s mini-Budget, PM+M’s managing partner, Jane Parry, has provided her thoughts on what this could mean for businesses and individuals…

    On the face of it, today’s barrage of tax cuts – including the basic rate of income tax cut and the abolition of the 45p additional rate – will be welcomed by some, but we are talking about some truly eye watering sums that are being added to the national debt. Some of the world’s leading economic voices and leaders believe this form of ‘trickle down’ economics is deeply flawed and will put the public finances on an unstable footing for years to come, and I am with them. Especially when compounded by the lack of an energy company windfall tax which is, in my view, pretty shameful.

    The news that corporation tax will stay at 19% is good news for businesses struggling with mounting costs, but – of course – it will only be benefit to companies that are actually making a profit. The energy price cap for business is a positive step but it’s still a chunky hike in costs and the real issue is that it gives no long-term certainty, which is what firms need. If there’s no de-escalation of the war in Ukraine, or it gets worse, then this move will be nothing more than kicking the can down the proverbial road. It’s simply impossible for businesses to make strategic and long-term decisions in this environment which is complex and ever changing.

    However, there was some welcome certainty on making the £1m Annual Investment Allowance for capital equipment expenditure permanent, thus avoiding the regular speculation about see sawing thresholds which hampers long-term business decision making. The promised enhancements to the venture capital investment schemes are also welcome.  Let’s hope those bankers start to invest their larger bonuses in UK businesses as a result.

    In terms of the NI reversal, it sounds great, but it will only help those who pay NIC and of course the benefit is skewed towards higher earners, so the really low earners in society won’t see much benefit at all.  Also, the practicalities of the reversal could prove a headache for payroll providers and also company directors and the self-employed who probably face some form of blended NI rate on their profits for this year.

    The Chancellor’s commitment to cutting business red tape and bureaucratic costs is great, but there was no mention of the relentless march of the Making Tax Digital and basis period reform programme which is due to hit the self-employed and landlords from April 2024, adding significantly to their costs of compliance.  The major accountancy bodies have already started telling the Chancellor that the system won’t be fit for purpose in time and will just create more headaches for business to distract them from their growth focus. I hope he listens, and we see something in the main November Budget on this.

    Much has been made about the stamp duty cut which sounds fine but again will only impact a few; namely those who are buying a house and particularly first-time buyers. With the cost-of-living spiralling and interest rates rising, you’ve got to be pretty brave to commit to a new mortgage just now if you’re an ordinary working person.

    The new Investment Zones are welcomed although much of today’s statement will have a disproportionate benefit for the South East.  Whether the Investment Zones are sufficient to achieve some levelling up remains to be seen.

    Overall, we are seeing some see-sawing of policies and the jury seems to be out on whether Trussian economics have much validity. The Treasury’s decision to not release the OBR’s predictions are concerning to me as is the issue of making all these tax cuts to stimulate demand whilst not changing the Bank of England’s remit on inflation, so that it will be forced to increase interest rates further. It’s going to be interesting to see how the markets react to this approach.

    We are living in strange times – we should enjoy these short-term savings whilst we can, but we must all keep a sensible eye on the realities we face and potentially batten down the hatches for what is likely to be a turbulent few months or years ahead.