Posted on 9.7.15 by Christian Mancier
Partner in the Corporate-Commercial department, Christian Mancier, reflects on the summer 2015 Budget announced by George Osborne yesterday. Christian provides an in-depth analysis on several of the key measures, including: Corporation Tax, the new National Living Wage, Sunday Trading and the Northern Powerhouse amongst many others. He approaches each topic with one important question in mind – was it good for business in the UK?
The biggest business headline to come out of the Budget is the reduction in corporation tax to 19% in 2017 and 18% by 2020. A clear statement of intent that “Britain is open for Business”, with Britain having the lowest Corporation Tax rate of any G20 nation. In addition to making British business more competitive on the world stage, the new rates of Corporation Tax will further boost business confidence and it is business confidence that leads to a strong economy.
However, a note of caution is that the benefit of a reduction of corporation tax (an out-put tax) needs to be weighed against any increases in in-put taxes associated with carrying on a business (such as the insurance premium tax rise to 9.5%, the introduction of the ‘National Living Wage’ etc) and with any Budget the “devil is in the detail”, which invariable takes a little while to filter through.
Furthermore, the changes to the non-dom regime need to ensure that they don’t negate the benefits of the Corporation Tax cuts by disincentivising international entrepreneurs looking to set up and/or carry on business in Britain.
Annual Investment Allowance
Another welcome measure was the new cap of £200,000 on the Annual Investment Allowance which was originally due to be reduced from £500,000 to £25,000. This allowance allows small to medium sized firms to make tax-deductible investments in equipment, plant and machinery. The introduction of the £200,000 limit on a 5 year basis should allow businesses a degree of certainty when it comes to planning capital investment which can only boost business confidence even further.
National Living Wage
The most controversial aspect from a business point of view is probably the introduction of the National Living Wage for those aged over 25 which will start at £7.20 per hour and rise to £9 per hour by 2020. This will have the largest impact on the smallest of businesses and those businesses employing large numbers of staff who operate in the lower margin arena such as hospitality, retail and social care.
Some businesses will take the view that they should already be paying at least the National Living Wage as a way of incentivising staff and promoting loyalty, however, this is difficult in those lower margin and less skilled sectors. Some have openly criticised the fact that young people aged under 25 are excluded from the National Living Wage going so far as to say this is “morally wrong”.
Some help is available to the smallest of businesses in the form of a 50% increase to the National Insurance Employment Allowance, which will help small business owners reduce their wage bill and possibly off-set this against the introduction of the National Living Wage. However, some would prefer the decision on minimum wages to remain with the Low Pay Commission for fear of having to lay off staff if payroll costs go up.
Decision making for extending Sunday Trading beyond the maximum 6 hours for larger retailers has been devolved to Mayors and Local Authorities. It will be interesting to see how Local Authorities address this and what the appetite is for businesses to take up this opportunity given an increase in trading hours also means an increase in staff costs, overheads, insurance and risk amongst other issues. Businesses will no doubt take their time to make an informed decision before ploughing ahead…if their Local Authority lets them.
The change to the way dividends are taxed could impact on those smallest of businesses whose owners traditionally take their remuneration by a mix of salary and dividends. This has traditionally been for tax efficiency reasons. The Chancellor has no doubt tinkered with this system to try and level the playing field to the tax the business would have paid through PAYE/NIC had the business owner simply taken a salary instead of a mix of salary and dividends. This is a complex area and it will no doubt take the tax advisors a little while to get to grips with the changes which could involvement a big change to the regime many business owners have become accustomed to.
Skills and the skill gap is a major issue for businesses of all sizes and sectors. The introduction of an apprenticeship levy on large firms is welcome and those firms can reclaim this by employing apprentices. However, there needs to be checks and balances as the quality of the apprenticeship training must take precedence of quantity. It is hoped this is not merely a “numbers game”, but a long lasting legacy where there is a genuine focus on developing skills and professional development. At present there is a significant mismatch between the skills employers want school leavers and graduates to have when they come to them, against the actual skills those school leavers and graduates have having been through the education system. This means the British skills system must be more employer led with the education system adapting to the needs and demands of industry.
The Northern Powerhouse once again featured heavily, with Manchester being the beneficiary of the most concrete pledges, however, the biggest disappointment of the whole Budget from a Manchester/Northern Powerhouse point of view, was the Chancellor’s refusal to confirm when the “pause” would come to end the TransPennine rail electrification project, which is desperately needed to improve connectivity and address both overcrowding and a lack of capacity across the North of England, as well as having an immediate impact on the Northern economy.
There has been a promise to cut red tape and simplify the tax system. This sounds great on the surface, but any new systems will surely only introduce more red tape, time and cost to understand those new systems. The proof will be in the pudding, but bear in mind if you cut a piece of red tape you end up with two pieces of red tape!.
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