Crowe partners react to the Spring Budget

News Posted 16/03/23
National audit, tax, advisory and risk firm Crowe UK comments on the Chancellor of the Exchequer’s Spring Budget, which was presented to Parliament yesterday (Wednesday 15 March).

Jane MacKay, tax partner and head of tax

“The reference to “fixing the roof while the sun was shining”, a phrase used by George Osborne as part of his austerity budget in 2015, just reminded us that this was a Budget delivered in challenging economic times.

“In fact, the measures announced probably do no more than fix a few tiles on the roof with gaffer tape, and may not be enough to stop the house itself from falling down.

“Looking on the bright side though, the proposal to allow 100% tax deduction for qualifying plant and machinery will reduce the effective rate of corporation tax to below 25%, and will improve cashflow for businesses that make investment in equipment, including in high tech manufacturing, and does go some way to simplifying our tax rules.”

Rebecca Durrant, partner and national head of private clients

“It will be a relief to private clients that there were no surprises in the Chancellor’s Budget, which will hopefully create some of the stability that we need.

“His focus was very much on growth to stimulate the economy and support the targeted fall in inflation to 2.9% by the end of 2023. While the super-deduction for capital expenditure was removed as expected, this was replaced with a new full capital deduction, meaning that any capital expenditure by a business will be fully tax deductible.

“He also focused on reducing the nine million economically inactive people currently in the UK. Support around childcare, disability benefits and pensions were widely trailed and are welcomed. The increased annual allowances for pensions will mean that those that are able can contribute up to £60,000 to their pension each year (rising from £40,000).

“The biggest surprise was the announcement that the lifetime allowance fixing the level an individual can save into a pension will be removed completely, taking us back to a regime not seen since 2006. This will be particularly important to help retain those in the medical profession and help stop the trend of early retirement in the over 50s.

“There were no announcements as expected on Capital Gains Tax or Inheritance Tax so we can stop holding our breath until next time or at least until the Chancellor has the time to give these reforms more time and attention.

“All in all, nothing too onerous or exciting for private clients with the possible exception of the ability to swim in your local pool and have a post-Brexit pint in the pub!”

Simon Crookston, tax partner and head of corporate tax

“The Spring Budget was bland from a business perspective, failing to go far enough in promoting prosperity and stimulating investment. The continued increase in the corporate tax rate to 25% is disappointing. The Budget is not providing enough support to the majority of the owner-managed and mid-tier businesses in the UK.

“While the Chancellor’s announcement on full capital expensing on IT and plant and machinery is welcome, it is unclear how this is any different from the £1m Annual Investment Allowance (AIA) already in place, which already benefits 99% of businesses. The Budget does not go far enough to act as a catalyst for companies to invest. The Chancellor should have been bold and provided greater incentives for businesses to innovate and invest.

“It is a real shame that the Chancellor did not provide incentives to encourage further investment in green initiatives which are accessible to all. The focus is on nuclear and power stations, not everyday people. We need to radically change our approach to environmental and sustainability matters to reach the government’s net-zero targets. The Chancellor seems to have ignored these targets in his Budget.”

Simon Warne, tax partner

“Chancellor Jeremy Hunt’s speech did not contain much fiscal content as the tax rises we will experience in the years ahead were largely already announced.

“In particular, the corporation tax increase to a headline 25% from April feels like it’s going to hurt a lot of family and owner-managed businesses, although Mr Hunt said that only 10% of companies pay the full rate.

“Similarly, the ‘fiscal drag’ effect of high (8%) inflation feeding into pay rises on frozen allowances and tax bands means that according to some estimates, an additional £10.4bn of income tax will be collected in 2023/24 with no increase in tax rates.”

Nicky Owen, tax partner

“Some good news for partners of professional firms as the lifetime allowance for pensions has been abolished. This impacts all those that have made lifetime allowance elections and as a result, could not make any future pension contributions.

“They can now make pension contributions going forward and may also be able to utilise unused annual allowances brought forward from the three previous years. This was predominately geared at NHS doctors that are taking early retirement as a result of additional tax payable on their pensions.”

Johnathan Dudley, managing partner and national head of manufacturing business

“What was very pleasing was to see mention of an industrial strategy again, a concept that has been absent from both rhetoric and actions of the government for so very long.

“Confidence will get savers investing and spending, so the announcement of 12 more Investment zones, each with £80m of funding with ‘generous tax incentives’ does smack of a strategy. But as ever, the ‘devil will be in the detail’. Where does IT, plant and machinery stretch to?

“Incentives for innovation through R&D reliefs were interesting, to a point. Industry types seem limited though and there is little sign of a let-up in the attacking of R&D for SMEs that he announced back in October.

“The introduction of full capital expensing relief for all businesses sounds great but most SMEs enjoy this anyway with £1m per year already available. This actually won’t cost much overall and is a good headline with limited substance if the intention is to drive investment.

“What is encouraging is the continued investment in defence, carbon capture and of course nuclear but only if the investment is made and kept in the UK.

“The domestic cap extension is very welcome but businesses still have a potential cliff face in April; high energy users, especially businesses locked in now unattractive ‘deals’ will still be really worried about their strategic business models surviving into the summer and next winter.

“The Chancellor’s four pillars to drive growth were all good, but I’d really like to have seen a fifth E – help for energy for businesses because it’s those businesses that employ the people who pay the taxes and who continue to enjoy a rebate in their domestic bills.”

Phil Smithyes, managing director

“The anticipated changes to pension contributions and allowances were announced, albeit some of the underlying detail remains complex.

“The headlines of an increased annual allowance for pension contributions from £40,000 to £60,000 gross from 6 April appears to specifically target senior doctors and GPs in a bid to discourage them from taking early retirement.

“However, the taper for high earners remains, albeit with adjusted limits to the extent that those individuals earning in excess of £260,000 will have their tax relievable contributions restricted to just £10,000 from 2023/2024, which still appears inequitable.

“The complete abolition of the lifetime allowance came as surprise given that speculation had focused on raising the limit to £1,800,000. This will benefit a small number of individuals and, in turn, their families.

“However, the maximum amount of tax-free cash which can be withdrawn from pension funds is still referenced by the current lifetime allowance and will be retained at the current level of £268,275 (25% of £1,073,000), frozen thereafter.

“There is undoubtedly a missed opportunity here to redress the imbalance between private pension provision and Defined Benefit schemes and one wonders whether the abolition of the lifetime allowance is a precursor to future changes to the inheritance tax rules surrounding pensions.”

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