Rarely will you see a Conservative Budget with such a significant forecast net deficit from the policy decisions announced, and rarely any Budget so short on tax measures, according to accountants and business experts Hazlewoods.
With the total predicted net deficit rising to £75 billion by 2026/27, but with the Chancellor forecasting a reduction in the overall debt to GDP over the same period, it seems clear that Mr Sunak is putting all his hope on economic growth driving tax receipts.
Hazlewoods tax partner, Nick Haines, looks at the top 10 announcements in the autumn Budget and what they mean for businesses and individuals.
About the sponsors – Hazlewoods LLP
Hazlewoods is a UK top 25 independent business advisers and chartered accountants, with an established sector expertise hard to find elsewhere. It prides itself on a highly personal service, strong values and new ideas – with experts able to provide specialist accountancy, tax, audit and business advice.
With 23 years of experience, Nick Haines heads up the tax and property teams at Hazlewoods, assisting his clients with both their compliance and planning requirements.
For more information on how the Budget could impact you, or for tax advice for you or your business, contact Nick Haines on 01242 237661 or visit hazlewoods.co.uk.
1. Economic growth
Certainly, the Office for Budget of Responsibility (OBR) predictions are positive, at least in the short term, with economic growth forecast at 6.5 per cent in the current year, then six per cent in 2022/23, before falling back to 2.1 per cent.
Whether this level of economic growth is sufficient to plug the gap remains to be seen.
The OBR also downgraded its unemployment forecast from an expected peak of 12 per cent to 5.2 per cent, but the Chancellor warned that interest rates and inflation were set to rise.
2. UK Share Prosperity Fund
Over £2.6 billion is being allocated to the UK Share Prosperity Fund, referred to as ‘levelling up’, with Gloucester receiving £20 million for some much-needed works, including helping to transform the old Debenhams building into a University of Gloucestershire Health and Education campus.
3. Alcohol duty reform
There will be a one-year freeze on alcohol duties on beer, wine, spirits and cider from 1 February 2022. Longer term, the Government is looking to rationalise and simplify the alcohol tax system.
The number of main rates will reduce from 15 to six from February 2023. From this date all products above 8.5 per cent ABV (Alcohol by Volume) will be taxed in proportion to their ABV as opposed to the volume of finished product.
The Government will also introduce new rates for low strength drinks below 3.5 per cent ABV to encourage manufacturers to develop new products at lower ABVs.
Moreover, the Government will introduce a new small brewers’ relief for cidermakers and other producers of lower ABV drinks. The aim is to allow small producers to diversify their product range to other products below 8.5 per cent ABV while still benefitting from reduced rates.
Duty rates on draught beer and cider will be cut by five per cent, taking three pence off a pint.
4. Air passenger duty
Then came halving of air passenger duty (APD) on domestic flights (although somewhat interesting to do that on the eve of COP26).
There will be a new domestic band for APD for flights within England, Scotland, Wales and Northern Ireland which will cut duties by 50 per cent from £13 to £6.50. This should benefit up to nine million passengers from 2023-24.
On the other hand, a new ‘ultra-long-haul band’ of £91 will be levied on flights of 5,500 miles or more, £4 higher than the long-haul band.
5. Business rates relief cuts
Despite calls to abolish business rates from some quarters, the Chancellor defended the £25 billion revenue earning tax, and instead chose to focus on relief in certain areas, including 50 per cent relief for retail, leisure and hospitality (capped at £110,000 per business), relief for green technologies and a freeze on the multiplier.
6. Freeze on fuel duty
Mr Sunak also announced a freeze on fuel duty for 2022/23 costing the Treasury £1.5 billion from next year.
With the overall cost of fuel rising, however, fuel duty revenues are likely to increase significantly. As the price at the pumps goes up the tax take will increase for the Government.
7. Residential property developer tax
One tax rise, that had previously been announced, was the residential property developer tax, which applies on profits above £25 million, at a rate of four per cent. The aim is to use the majority of the funds raised to rectify buildings with unsafe cladding. This comes into force from April 2022.
8. Investment in research and development (R&D)
The Chancellor pledged to invest more in innovation, spending £20 billion per year on R&D by the end of the parliamentary term. This represents a 50 per cent cash increase of annual spending.
In addition, Sunak also announced a reform to the R&D tax regime, extending the definition of qualifying expenditure on which an additional tax deduction can be claimed to include cloud computing and data costs.
Further, steps will also be taken to ensure that the funding provided stays within the UK to encourage UK innovation.
9. Annual investment allowance (AIA)
To encourage investment as we head out of the pandemic, the temporary increase in the AIA from £200,000 to £1 million has once again been extended. Previously set to end on 31 December 2021, the Chancellor announced that the £1 million limit would now be available until 31 March 2023.
Although the dates have been aligned with the timing of the corporation tax rate increase, the extension applies to all businesses eligible to claim the AIA.
This is welcome news particularly for unincorporated businesses that do not have access to the 130 per cent super deduction for companies, as announced in the spring Budget.
10. Universal credit
The final key announcement was the reduction in the taper rate for Universal Credit, from 63 per cent to 55 per cent, which Rishi announced was effectively a £2 billion tax cut, giving an extra £1,200 per year to a single parent and £1,800 per year for a couple with children.
The Chancellor ended his speech with the pledge that, by the end of parliament, taxes will be coming down, rather than going up. To do that, he will need his gamble on the economy to pay the jackpot.
For more information on how the Budget could impact you, or for tax advice for you or your business, contact Nick Haines on 01242 237661 or visit hazlewoods.co.uk.
By Andrew Merrell
Follow SoGlos on LinkedIn and sign-up to the weekly SoGlos business newsletter for the very latest Gloucestershire business news stories.
