Philip Hammond’s first Budget was a Budget of mixed messages with some of the elements of the relating to companies being quite positive whilst others around individuals were less helpful. Nigel Syson, Director of Corporate Tax at Haines Watts, outlines some of the more important detail.
AT a macro level, Mr Hammond’s Budget sent a message of ‘steady as we go’ reassurance with the Chancellor resisting the temptation to reduce taxes, preferring to keep interest rates low, partly to protect highly-geared home buyers and partly to keep the exchange rate relatively low which, in itself, is leading to booming manufacturing levels in the Midlands and the north.
In spite of this, the Budget has received much poor publicity as a ‘white van car crash’ with the Chancellor originally launching an attack on the NIC liabilities of the self- employed and small risk taking businesspeople by increasing Class 4 NIC by one per cent from April 2018 with a further one per cent increase from April 2019. With what is probably the fastest budget U-turn in history and in the face of sustained pressure from the profession, the press and backbench MPs on behalf of the self-employed, the Chancellor has already withdrawn the proposed increases which only goes to show that speed really is of the essence when it comes to financial planning.
Another hit to smaller scale businesses has been the taxation of dividends, which saw a dramatic 7.5 per cent increase in the current tax year and will now see a further hit from April 2018 when the tax free dividend allowance is reduced from £5,000 per year to £2,000 per year.
There is, however, some light at the end of the business tunnel with a further reduction in headline corporation tax which we have seen go from 28 per cent in 2010 to 19 per cent in 2017 and will now fall to 17 per cent in 2019. In fact, as we seek to maintain our international competitiveness this is likely to fall still further in future years. There are substantial benefits to a more competitive corporation tax position and the recent corporation tax reductions have already resulted in:-
* A 28 per cent increase in corporation tax receipts between 2011/12 and 2015/16
* An increase in overseas investment
* Increased investment of between 2.5 per cent and 4.5 per cent
* Increased GDP of between 0.6 per cent and 0.8 per cent
* Increased household income of £405 to £515 per household
The other major tax success is the R&D tax credit regime, which is designed to provide tax relief for projects undertaken with scientific or technological uncertainty. This has provided valuable support to many sectors of UK industry although it is noticeable in some of the more traditional industrial areas such as the East Midlands that the take-up has been below the national average. The Budget confirmed the government’s ongoing commitment to the R&D tax credit regime with the announcement that they will be making administrative changes to R&D tax credits for large companies to make the process of claiming simpler.
So, in summary, a steady as we go Budget with the NIC U-turn being a welcome reinstatement of the Government’s belief in a low tax expanding economy.
Contact Nigel Syson, Director of Corporate Tax, Haines Watts Northampton on 01604 746760, email or visit the website www.hwca.com/accountants-northampton