It was clear since well before the release of the Spring Budget that it was not going to contain simple solutions or pleasant surprises, says IFA CEO and Group Executive – International John Edwards.
With inflation peaking late last year at a four-decade high of 11.1 per cent, eroding the real value of wages and causing economic growth to further stagnate, and wholesale energy prices at record highs, there wasn’t any room for new and generous gifts from the Chancellor.
But there are still some interesting and potentially powerful points in this budget for IFA members and their clients, John says.
Of course, the corporation tax increase from 19 per cent to 25 per cent grabbed a great deal of media attention, but the simple truth for most small businesses is that their rate will remain at 19 per cent, he says.
The corporation tax only increases to 25 per cent for profits above £250,000. A small-profits rate of 19 per cent was introduced, to far less media fanfare, for companies with profits of less than £50,000. Profits between £50,000 and £250,000 will be taxed at the main rate but with marginal relief. (See the marginal relief calculator.)
This is an important point for small business owners and for the economy, Edwards says.
“Most small businesses will still be at the 19 per cent rate,” he says. “And 90 per cent of the UK economy is held up by small and micro businesses, so this is important to recognise.”
“Any profit from £50,000 to £250,000 is tapered, so very few small businesses will be affected by the 25 per cent rate.”
Pension changes are a positive
Ian Hornsey – IFA Board Member, Chair of the IFA Member Advisory Committee, IFA Regional Ambassador for Eastern England, and Joint CEO of Devonports LAS Accountants and Business Advisors – agrees there were no major surprises in the Budget. But, he says, there’s still plenty to interest small businesses.
“Because of inflation and the economic situation in the world, caused by Ukraine and more, and causing rising prices, nobody is surprised by this Budget,” Ian says.
“A lot, from a tax point of view, that really affects our clients was done in the Chancellor’s Autumn statement last year. But obviously there were major changes to the pension lifetime allowance.”
Actually, Ian says, the removal of the lifetime allowance charge is a positive. Not only does it encourage GPs and other health professionals to remain within the understaffed NHS – there are over 133,000 full-time job vacancies in the NHS – by putting the brakes on the trend of early retirement, it also encourages retirement savings in general.
“Having to pay extra tax because you’ve been wise to save for your retirement, that has never been a good thing,” Ian says.
Special investment zones: Are we moved?
The Budget continued what has become known as the ‘levelling up’ of the UK, in a business and geographic sense.
The announcement of 12 new investment zones, each with £80 million funding over five years to upgrade skills, support businesses to grow, develop local infrastructure and to offer tax relief incentives, could encourage some small businesses to move from expensive cities to more affordable regions.
This could also offer better quality of life for workers, alongside the post-COVID expectations around remote work, John says.
While it’s yet to be seen how these zones are managed, it’s thought that innovation clusters might develop around themes such as smart manufacturing, health sciences, technological innovations and more.
“These zones are designed to help supercharge various businesses and sectors,” Edwards says. “I’m old enough to know that we’ve been through recessions before and, in the UK, we might be down but we pick ourselves up and we dust ourselves off and we get back on the road.
“I think this is a great opportunity to really supercharge entrepreneurial efforts, to encourage investment and to grow the economy as quickly as we possibly can, to avoid the recession that we keep hearing about. If it’s managed correctly, it will work.”
Energy assistance is welcome
One of the other major headlines for individuals and small businesses, from the recent budget, is the continuance of government assistance for utilities, Ian says.
“From a utilities point of view, my clients are suffering,” he says. “But the government has provided help, which has to be paid for. The government is spending our money on this, but these are real pressures.”
In his own business office, Ian says, the heating bill has doubled. And this is not unusual, so any assistance, whether it’s the 5p cut in fuel duty, the three-month extension in support for energy bills or the fact that energy prices are 50 per cent lower than forecast in October, is welcome.
However, the £400 winter fuel payment will not be renewed, so it’s not all good news.
Will inflation decrease?
Much of the Budget’s intention was to ensure inflation falls. In fact, the Office for Budget Responsibility has projected a drop in inflation from 10.7 per cent to 2.9 per cent by the end of 2023. But how likely or realistic is this?
Of course, if inflation was to fall at such a dramatic rate it would be unarguably positive for small businesses. The often crippling raw material and utility costs would finally fall. But can we rely on this?
“We have to listen to the experts, of course,” Hornsey says. “But the problem is that a lot of this is about events that we have no control over. For example, we have no control over food prices.
“This is not about people going out and spending money, it’s about prices going up. The Governor of the Bank of England suggested businesses do not pass on costs, such as increases in food prices. But if you own a restaurant and you have an increase in cost coming from suppliers, you have to pass it on. How do we resolve that? I don’t know the answer.”
John agrees that we can’t be sure which direction inflation will ultimately move.
“The war in Ukraine, obviously, doesn’t help matters. We’ve just come out of the pandemic and we’re now in a different situation,” he says.
“The world is in a very unstable situation and, in many cases, we’re simply not in control. The only time we’ll see any real control coming back is when the war ends. It’s not a UK issue, it’s a global issue.”
We’re undoubtedly in a difficult period, which is why it is vital that the IFA continues to represent a collective voice.
“The Institute of Financial Accountants has a place in the groups and panels that make up the HMRC framework,” Edwards says.
“We’re there to very much represent the voice of members – accounting professionals, tax professionals, bookkeepers – many of which are small practitioners, the small businesses, the micro businesses, and are advisers to other small businesses. We have the opportunity to lobby and to get our views across. It has never been more important for our members to have a voice.”
