Businesses are being urged to take full advantage of fiscal incentives and reliefs to aid their recovery as the economy rebounds from the pandemic and growth forecasts show signs of improvement.
In his Budget Statement, Chancellor Rishi Sunak confirmed that the Office for Budget Responsibility (OBR) has revised up growth forecasts for the economy, which it expects to return to pre-Covid levels by the turn of the year.
Instead of announcing more tax increases, the Chancellor has chosen to focus on increasing spending in areas that will drive economic growth in order to increase the tax take and re-balance the economy in the wake of the pandemic.
Business rates reform and retail
The Chancellor announced plans to proceed with reforms to the business rates system by ensuring rent re-evaluation takes place more frequently – every three years from 2023. From 2023, he also announced that businesses making property improvements will not pay anything extra in business rates for 12 months.
For retail, hospitality & leisure businesses, the Chancellor announced a new 50% business rates discount up to a maximum of £110,000.
Rebecca Wilkinson, tax partner specialising in the property and construction sector at accountancy firm, Menzies LLP, said: “These changes could help to kickstart the redevelopment of the high street as retailers in particular start to feel more confident about investing in improvements to their properties, without incurring a hefty business rates penalty for doing so.”
Export and international trade
Director general of the Institute of Export & International Trade, Marco Forgione commented: "It is good news that the Chancellor has announced a rise in the Department for International Trade's budget - in particular the allocation of £45m in funding for the Export Support Service holds out the prospect of really making a difference to how the Government can help businesses to export.
"There is funding too for radical improvements at the border to streamline traders' interactions with agencies. The introduction of a Single Trade Window, the funding for which, to the tune of £180m, has now been announced, is an opportunity for a step change in how trade is done.
"Having an efficient, effective border is a big part of facilitating international trade and so the £838 earmarked for upgrading how people and goods get into and out of the UK should signal a big step forward. Digital technology can offer a lot in terms of removing barriers and enabling companies to get what and who they need to their customers quickly and predictably. If admin can be done in advance away from the border itself it reduces the likelihood of the last minute snags and snarl ups that cost businesses so much.
"In the light of the skills shortages, from which we know internationally trading companies are suffering, the commitments of an additional £554m Adult skills and an uplift for apprenticeships are very welcome. Training people to do roles such as customs compliance or logistics management is essential if we are to boost the UK's international trade performance.
"And as eyes turn towards COP, and the scale of the climate challenge becomes ever more apparent, the moves to green shipping by attracting more carriers to the UK's stringent standards is to be applauded."
Incentives for capital investment and manufacturing
The Chancellor announced that the Annual Investment Allowance (AIA) will not drop to £200,000 at the end of this year and will stick at the much higher level of £1 million until March 2023.
Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: “This gives businesses a bit more certainty so they can plan ahead to make investments over the next 18 months. It should also help to bolster confidence at a critical time when many firms are concerned about rising costs and supply disruption.
“Some businesses that had been planning to invest in new machinery and equipment before the end of year had been worried about being able to complete them in time, due to the current supply shortages. This will allow them more time.”
Alastair Wilson, Tax Partner at MHA, believes the Chancellor missed a trick by failing to address long standing issues blighting the manufacturing sector including supply chain issues and freight costs:
“The Chancellor’s budget did little to address ongoing pressures being felt across the UK manufacturing sector including supply chain issues and rising shipping and fuel costs.
“The highlight for manufacturers will be the positive expected tax relief from the increased scope of qualifying costs within the R&D Tax Reliefs regime to include certain data and ‘cloud’ costs which up to now were the burden of businesses. However, the Chancellor should have gone further by making Robotic Process Automation software costs a specific inclusion as a qualifying cost, which would help the government accelerate its aim of ‘high productivity, high wages’ across the economy.
“The extension of the £1m Annual Investment Allowance (AIA) until the end of March 2023 is welcome but is unlikely to change many businesses’ investment plans and certainly will not offset the negative financial impact to come from the rise in Corporation Tax announced in the March 2021 budget, or the increased level of National Insurance for employers (which will become the Health and Social Care Levy) announced in September.
“The increase to the National Minimum Wage and National Living Wage which will come into effect from April 2022 are clearly beneficial for employees but will add to the wage inflation being experienced by employers. The combined impact of the NIC increases and the Minimum/Living Wage levels will automatically cause wage inflation of more than 5% for many employers from April 2022. Ultimately these will likely end up being passed on to end consumers.
“In short, it was a very quiet budget for the manufacturing sector that did little to solve the ongoing issues being experienced across the sector. As some in the industry have said, it may not be a ‘high productivity, high pay’ economy but more a ‘high cost’ economy.”
Incentives for innovation
The Chancellor announced plans to expand the scope of R&D tax relief to include investments in cloud computing and data costs. He also announced plans to amend the system to prevent activity taking place outside the UK from qualifying for R&D tax relief. He also announced a further £22 million funding for R&D activity, separate from the Government’s investment in R&D tax credits.
Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: “This looks very favourable for businesses investing in innovation across industry sectors as more of their investment activities will qualify for R&D tax relief from April 2023. However, this scheme is still not used as much as it could be and businesses should seek advice about whether they could be submitting claims in the future.”
Investing in skills
As part of a package of funding for skills and education, the Chancellor announced a significant increase in funding for apprenticeships. As part of this package of funding, the Government is planning to introduce an enhanced recruitment service to support SMEs in finding new apprentices. The Chancellor has also extended the £3,000 apprentice hiring incentive to the end of January 2022 (it was due to end on the 30th November 2021).
Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: “Employers have been hiring more apprentices and take up of the £3,000 apprentice hiring incentive has been strong. Extending the incentive for a few more months will allow businesses more time to take advantage of the support available and help with sourcing suitable candidates will also be helpful.”
Budget announcement of a continued freeze on fuel duty will assist the logistics sector in its move to decarbonisation by 2050, according to business group Logistics UK. As Elizabeth de Jong, the organisation’s policy director explains, the announcement will enable businesses to make the switch to alternatively fuelled vehicles more smoothly.
“The impact of the pandemic on the economy, and our industry in particular, has made vehicle replacement planning particularly challenging,” she explains. “The logistics sector traditionally runs on extremely narrow margins, with limited amounts of money available for vehicle purchase – so the removal of uncertainty over fuel duty levels for another year will give our industry time to plan vehicle replacements more effectively.
The fuel duty freeze was one of a series of measures announced in today’s Budget which will have a positive impact on the logistics sector, as Ms de Jong continues:
“Logistics is at the heart of all sectors of the UK economy, and it is encouraging to see many Budget announcements which will help business operations in our industry. The freezing of HGV excise duty and the extension of the suspension of the HGV levy for a year will make the operation of vehicles more cost effective. In addition, the continued investment in road and rail infrastructure, as well as in customs and transit arrangements is welcome news which will help goods move smoothly.
“Logistics UK is pleased to hear the Chancellor’s commitment to improve the quality of HGV parking spaces available. However, as the government’s own figures estimate there is currently a shortfall of more than 1,400 spaces nationally, there is still more to be done. The business group will remain in close contact with government on this issue, to ensure that the spaces needed are finally delivered, after more than three years of promises which are yet to be fulfilled. This is vital to acknowledge the contribution which HGV drivers make to the UK’s economy and help industry attract new recruits to the sector.”