The Chancellor’s battle cry was “whatever it takes” and he backed that up by pledging billions to continue to support businesses and families through the pandemic.
He also stressed the importance of encouraging investment, especially in innovation, to build the UK’s future economy.
However, Sunak made it clear that honesty was the best policy regarding the need for future tax changes to balance the public finances.
Restoring the public finances
Although he confirmed that the Conservative party was to maintain its manifesto promise of not increasing income tax rates, he announced that the personal allowance and income tax bands would be frozen at their current levels for the coming year.
This means that the effects of inflation will be suffered by taxpayers rather than the government.
If wages go up, the whole increase will be taxed, not just any increase above the rate of inflation.
The taxpayer will still be better off in cash terms but the effect will be that they lose out in real terms.
Simplistically, if a basic rate taxpayer receives a £100 pay rise to match inflation, they will only keep £80 of this, leaving them worse off in terms of spending power.
It’s back to the future on corporation tax – rewind the clock 10 years and we had a corporate tax rate in the mid 20s and a small companies’ rate of tax.
The chancellor has resurrected both of these policy areas today, but has given companies a couple of years until before the full impact is felt.
From April 1, 2023 a new main rate of corporation tax will be set at 25 per cent. At the same time, a small profits rate of 19 per cent will be introduced chargeable on companies with profits of £50,000 or less.
Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25 per cent but will be able to claim marginal relief.
Over next five years the rate increase is expected to generate additional corporation tax of approximately £50bn, and in 2026 alone this will result in additional tax of £17bn.
Given that total corporate tax receipts for 2021-22 are expected to come in at around £40bn, the scale of this increase from this single change is obvious.
Investment-led recovery
A “super-deduction” for corporate investment was a welcome surprise for companies. A temporary 130 per cent capital allowance tax relief on qualifying capital asset investments will be available from April 1, 2021 until March 31, 2023.
The timing of the deduction should serve as a counter to the fact that corporation tax will rise from April 1, 2023: companies that might otherwise defer investment until then to benefit from tax deductions at higher rates will not lose out by moving sooner, and in fact are likely to benefit more.
The relief has not been extended to unincorporated businesses, which may cause some concern for some businesses structured as partnerships.
The intention is to promote capital investment for an “investment-led recovery” and it will be interesting to see how many companies bring forward planned investment in difficult economic times before the temporary relief is taken away.
The chancellor also spiced things up with various initiatives and investment in training and apprenticeships for businesses to promote productivity, and there are the first signs of post “Brexit fiscal freedom” with Sunak signalling a consultation on research and development tax relief which is likely to focus on keeping the UK at the forefront of global innovation.
Supporting businesses and individuals
For businesses, there will be an extension in the ability to carry back losses of up to £2m against profits of the previous three years, supporting businesses that have incurred losses due to the pandemic but were previously profitable.
The government will continue to provide eligible retail, hospitality and leisure properties in England with 100 per cent business rates relief until the end of June. This will be followed by 66 per cent business rates relief until March 31, 2022.
There will be an extension of the temporary reduced rate of 5 per cent VAT for goods and services supplied by the tourism and hospitality sector until September 30, 2021. There will also be a transition period, where the reduced rate will increase to 12.5 per cent before returning to the usual 20 per cent after March 2022.
For individuals, the Stamp Duty Land Tax holiday on properties below £500,000 will continue until the end of June. This nil rate band will then be reduced to £250,000 until the end of September before reverting back to the usual £125,000.
While an extension will be welcome news to buyers, there will be concerns from those working in the property market that the chancellor’s decision to extend the period simply kicks the problem of a cliff-edge deadline down the road.
Lewis Tompkins is associate director at RSM and Chris Down is assistant manager at RSM
