Against a contrasting backdrop of upcoming Brexit turbulence but a brighter economic outlook, the Chancellor provided businesses with some positive news whilst not making any wholesale changes.
As the clocks went back over the weekend, you could be forgiven for thinking we have time-travelled back to the 2017 Budget. Once again, the Chancellor opened his Budget with a message of positivity; a message of Britain remaining open for business, a message of further investment and reduced deficit.
A similar theme of helping smaller entrepreneurial businesses and taxing larger multinationals continued with a particular focus on helping smaller ‘bricks and mortar’ based businesses, and also those engaged in high tech or the “digital economy”.
The shift away from chopping and changing short-term policies continued with the Chancellor tweaking existing policy rather than making wholesale changes. In the context of Brexit, where the business community craves certainty, the Budget went someway to provide that as we continue along the pathway of focussing on skills, productivity and innovation. Initial soundings from the business community are positive. However, time will tell whether this Budget has done enough to keep the Small and Medium Enterprises (SMEs) in Britain convinced we are on the right path, especially with the prospect of Brexit looming.
The Chancellor announced a number of legislative tax changes to support his continued message of further investment and a reduced deficit.
Capital allowances legislation has been altered to stimulate capital investment by increasing the annual investment allowance (AIA) from £200,000 to £1 million for two years from 1 January 2019. However, it is also worth noting the removal of enhanced capital allowances and first year allowances on various energy efficient additions from April 2020. This removal is explained due to simplifying the tax system, and to some extent, with an increased AIA that may be true. For SMEs unlikely to exceed this limit, it will remove additional work to establish whether their assets would qualify. Furthermore, the introduction of a new allowance covering expenditure on the construction of structures and buildings was both unexpected and very welcome, bringing the UK tax regime in line with other competitive territories.
A key measure in recent years was to simplify how brought forward losses can be used in profit making companies. The Chancellor announced that capital losses (from 1 April 2020) are expected to be utilised in a similar fashion to income losses and that the Government will revisit the loss reform legislation to ensure that it works as intended and delivers on the message of simplification.
Helping the High Street
Once again, more support has been provided to the High Street, in particular supporting small businesses with properties of a rateable value below £51,000. Qualifying properties will enjoy a reduction in their business rates of one third.
Investment into innovation
Whilst the Government continues to invest into innovation, infrastructure and the tech sector more generally, there is expected to be more scrutiny over R&D tax credits being claimed by SMEs. It is expected that the maximum credit will be restricted to three times the company’s total PAYE and NICs liability. The Chancellor is again demonstrating his desire for everyone to pay their ‘fair share’ and that most certainly extends to the SME market. On the plus side though, the Government announced the intention to improve the tax relief available on the acquisition of IP rich businesses, with further details on this expected after the current consultation process.
Stability in unstable times – Is it enough?
Once again the Chancellor talked the talk, but given the overall economic climate, is he able to walk the walk?
For some, the fact that the unemployment rate stands at four percent, the lowest since 1975, or that productivity growth is rising at its fastest rate since 2016 is enough to say he is. Additionally, the largest ever roads investment package alongside an additional £770 million to improve transport infrastructure and moving to the next stage of full fibre broadband nationwide makes good reading on his report card.
But unfortunately for the Chancellor, the uncertainty surrounding Brexit remains. So much so, that the Chancellor has now committed some £4 billion in preparing for EU exit since 2016. Could this be saving for a rainy day? Or is this an indication of worry, signalling that the UK will not get out of the relationship well? It is of course too early to tell and whilst the Chancellor remained positive that Brexit negotiations would reach a positive conclusion, it appears prudent to plan for the worst and hope for the best.
The Budget reflected that, as a nation, the Chancellor believes that as a result of the hard work of the British people, we will go from strength to strength and he is now starting to loosen the purse strings with “the era of austerity finally coming to an end”.
Therefore for the SME community, the Budget may just be enough to keep the positivity going for now, at the very least, until the next Brexit update.
The changes in respect of capital allowances show a welcome commitment to businesses that invest in their physical capital asset base.
The amount of capital gains that can be relieved by carried forward capital losses will be limited to 50 percent from 1 April 2020.
The Chancellor has announced the introduction of a new Digital Services Tax in the UK from April 2020.
A fundamental rewrite of the tax rules governing regulatory capital, extending access to the regime beyond the regulated financial sector.
The Government has listened to concerns raised over the competitiveness of the tax rules for intangibles.
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