Emma Suchland, Tax Partner at BDO LLP in the North West, commenting on the Chancellor’s Budget Speech said:
“The Chancellor described this as a ‘big budget for a country with big ambitions’ but it largely bypassed medium sized businesses, the backbone of the UK economy.
“On the one hand the surprising reduction in the headline rate of corporation tax to 19% next year and 18% by 2020 was a positive move for businesses, as was the increase of the NIC employment allowance from £2,000 to £3,000. However, this will largely be offset by the introduction of the national living wage which may well have a significant impact on small businesses.
We were pleased to see that the annual investment allowance for plant and machinery was set at a long term level of £200,000 per annum. The allowance is currently £500,000 but was due to reduce to £25,000 from 1 January 2016. Although we would have liked to see a more generous allowance this is still a significant incentive for businesses to invest in their future and hopefully go some way to addressing the UK productivity conundrum.”
“The Chancellor previously said he was planning to raise £5bn from tax evasion and avoidance. This seems an optimistic target in the context of the sustained focus on tax avoidance in the previous parliament. However, the surprise move by the Chancellor to committing £750m of additional resource to HMRC will help in achieving this target. This is a return to the ‘spend to save’ policies of previous governments and, on the surface, seem like a sensible move. However, our concern is that HMRC may direct these extra resources to easier targets by enquiring into the affairs of law abiding taxpayers who may have made innocent mistakes.
“One of the more anticipated moves by the Chancellor was concerning non-domiciled individuals. The rules will be changed from April 2017 so that individuals who have lived in the UK for 15 out of the last 20 years will be deemed UK domiciled. This is expected to raise up to £1.5 billion during the course of the Parliament. There is always a question around whether seeking to target non-doms actually brings in more tax as these individuals are generally internationally mobile and could choose to leave the country. However, this move was more about addressing a perceived unfairness rather than an exercise in revenue saving and will be a popular move.
“One of the main surprises in this budget was the announcement of a new “national living wage” of £7.20 which will be introduced from April 2016, rising to £9 by 2020. This fits in with the Chancellor’s theme of a higher wages, lower tax and lower welfare economy. The issue, of course, is that higher wages are borne by businesses rather than the Government and so the proposed reduction to the rate of corporation tax and the increase of the national insurance employment allowance from £2,000 to £3,000 are intended to offset this cost to business. Naturally there will be business winners and losers depending on how many low paid employees a business has and its level of profitability.
“The national minimum wage was set to increase to £6.70 and so there will initially be an increase of 50p per hour to £7.20. With the NIC employment allowance increasing by £1,000 this will give smaller businesses an NIC saving to cover roughly 2,000 hours. If an employer pays the minimum wage on more than 2,000 hours that business will be a net loser unless they are profitable enough to benefit from the reduction in the rate of corporation tax.
