Next week, on Wednesday 3rd March, Chancellor Rishi Sunak will give, perhaps, the most anticipated ‘Spring Budget’ in recent memory – following Prime Minister Boris Johnson’s roadmap out of the coronavirus pandemic.
With debates around what we can expect to see rife amongst entrepreneurs and senior business professionals, Business Leader spoke to some industry leaders on what could be featured in next week’s budget announcement.
Clarify his business rates strategy
Chancellor has a golden opportunity to re-assure businesses across all sectors adversely impacted by the pandemic – Colliers cautions against a short-term approach
The Chancellor has a golden opportunity to reassure businesses and clarify his business rates strategy in the forthcoming Budget on March 3rd says John Webber, Head of Business Rates at Colliers International. But it’s essential he uses the system to look at the wider economic picture for the year ahead – not just the next three months for when we come out of Lockdown.
Although the Chancellor has ruled out any immediate major response to the on-going consultation on business rates reform, now delayed until the Autumn, the business rates team at Colliers suggests that the Chancellor:
- Follows through on indications that he will extend the current 2020/2021 business rates holiday for the retail, hospitality, and leisure sectors due to end at the end of March. Colliers says it is important he makes this is at least for another six or even twelve months from April 2021; giving the sectors proper time to recover from the impact of the Covid-19 pandemic and national lockdowns. Current locked down retailers or hospitality businesses will be unlikely to be able to take back their business rates commitments quickly, particularly as “opening up” is going to be staggered. In Scotland a 12-month extension of the rates holiday has already been granted for these sectors
- Offers this rates holiday only to companies in these sectors who have seen genuine hardship. Businesses should need to show a proof of decline in turnover or profit caused by the pandemic and lockdown to be eligible. That way neither the supermarkets nor the online retailers who have benefitted from the closure of other purely physical competitors would be eligible this time and would not apply unless they had undergone genuine hardship.
- Provides business rates relief for other sectors who have not had the advantages of the business rates holiday who can show genuine hardship. This would include the aviation industry, and also businesses in manufacturing (particularly those that supply retail/hospitality and leisure) and many offices businesses.
In the office sector most businesses have been prohibited from using their offices during Lockdown and workers told to work from home. Since then many offices have remained empty or only became partly occupied. The financial implications have been dramatic for many- as seen by the sheer number of companies appealing their rates bills via MCC (material change of circumstance.) Colliers estimate this number is now around 350,000.
Colliers estimate that a blanket six months rates holiday for retail/hospitality/leisure would cost the government around £6 billion, but an application only system with widened usage to other sectors would be no more than £4billion or £5 billion.
- Give the VOA a deadline of 1 July 2021 of disposing of the 350,000 MCC business rates appeals that are snarled up in the system.
- Immediately reduce the business rates multiplier to £0.30 from current levels of £0.51- making business rates a more affordable tax across the board- so all rate payers can benefit.
- Commit to a 2023 Rating Revaluation, even if the VOA has to complete this in one year (as committed to in Scotland). The VOA should be properly resourced to carry out such a revaluation. Leaving the next revaluation to 2024 would be disastrous and essentially mean another seven-year list, with businesses paying rate bills based on rental levels of 2015 for another three years. This should be avoided at all cost.
- Clarifies Rules on State Aid. Now the UK has left the EU, it is essential that financial help to businesses is not hampered by EU State Aid restrictions. The European Commission’s “Temporary Framework” increased limits on State Aid to euro 3 million per business for those facing a declining turnover (at least 30% decline compared to the same period of 2019) due to the coronavirus outbreak. However, many businesses are unsure of where they stand on this- so the Chancellor must give greater clarity and make sure that in a post Brexit world the UK is not shackled by EU restrictions.
- Brings in a business rates arrears moratorium for those businesses, who because of the pandemic have been unable to pay their business rates bills. Colliers suggest this should be for at least six months allowing businesses a chance to sort out their finances. Many hard-pressed businesses have received enforcement orders from their billing authorities for failure to pay their rates bills. Colliers urges the Government to instruct Local Billing Authorities to show flexibility and support to business rather than stepping up the heavy-handed court summons.
- Consider introducing an on-line sales tax to reduce the discrepancies between what on-line retailers pay in business rates tax and the high street physical retailer. Colliers believe an online sales tax could work if the tax take is ring fenced for the finance of local government and goes towards reducing the tax take from business rates applied across the board. It should be used to support the reliefs above and a reduction in the UBR, thereby making taxation fairer for all parties.
John Webber, Head of Business Rates at Colliers concluded: “Whilst we have been disappointed that the Chancellor has delayed the business rate review until the Autumn, he does still have a golden opportunity next Wednesday to bring some relief to businesses across the country who are struggling as a result of the unprecedented circumstances we have seen in 2020/21. We urge that he does not ignore business rates and that he reassures businesses that they will not be faced with either untenable bills from the end of the month or court action.
“Failure to do bring in significant reliefs to those companies that need it, may mean the bloodbath we are currently seeing in the retail and hospitality sectors could well spill across other sectors, leading to more closures and job losses across the board. Let’s hope it doesn’t come to that and the Chancellor shows that he listens to the pleas of businesses and provides them with the support they desperately need.”
Raising Corporation Tax is a self-defeating strategy
Following reports that a rise in the Corporation Tax rate (currently 19%) is now very likely to form part of this year’s budget (3 March), Chris Denning, Head of Corporate and International Tax at MHA MacIntyre Hudson, believes the government needs to stimulate enterprise and investment and, like it or not, the Corporation Tax rate is a seen a bell weather for the attractiveness of the UK economy.
He said: “Small changes in tax rates are more about influencing behaviour and sending a message than raising revenue. For foreign investors, already nervous about the post-Brexit environment, a rise in the headline rate of Corporation Tax could be the straw breaking the camel’s back for any potential overseas investment. This would not necessarily be due to the extra tax in and of itself, but because of the message it sends out about the UK’s willingness to preserve the current fiscal regime which foreign investors find attractive and is one of the key drivers in the UK being a preferred location when businesses are expanding internationally.
“The UK needs a fiscal regime centred around international competitiveness now more than ever. The Chancellor should concentrate on growth and the way to do that is to create a vibrant economy. He needs to use his fiscal tools, like varying tax rates, in a positive rather than a negative way. We have good foundations in place already, with our foreign dividend and participation exemptions, R&D tax relief, Patent Box relief and the Capital Allowance regime. It is vital not to backslide on this as post-Brexit the UK is arguably now less attractive to overseas investors. With borrowing also currently very cheap, there is no need to pay for the pandemic in the short term.
“Corporation tax revenues are a relatively small part of the UK’s total tax intake (circa 6% in 2019/20) and total receipts have increased in recent years, despite the main rate being lowered in 2017 (from 20% to 19%).* A rise in the tax rate, even if it raised more revenue, could not raise enough to compensate for the damage to the UK’s reputation for competitiveness.”
What could it mean for the SME community?
2021 will be a defining year, determining the direction of a more competitive, greener, and dynamic UK economy. It’s also the first budget since the UK and EU Trade and Cooperation Agreement. The coronavirus pandemic has heavily impacted the SME community, making survival the top priority for many SME business leaders over the past year.
Throughout 2020, The Chartered Institute of Management Accountants (CIMA), the world’s largest body of management accountants, has advocated in support of UK SMEs and provided them with resources to navigate the pandemic. It also believes that more must be done to help them evolve and thrive as the UK prepares to reopen its economy.
Andrew Harding, FCMA, CGMA, Chief Executive – Management Accounting at CIMA, said: “After a year of disruption and harsh restrictions many SMEs haves been pushed to their limits. While the UK Government has rightly focussed on protecting livelihoods and jobs, attention must now focus on kickstarting our economic recovery. Key to this will be giving SMEs the opportunity to establish growth and jobs.”
“While CIMA is urging the government to keep in place the current level of support that the SME community is receiving due to current restrictions, the Chancellor must now also focus on how to best to support UK SMEs on the long road to recovery.”
CIMA is calling on the Chancellor to:
- Support jobs and create new employment opportunities by introducing a Growth Accelerator Scheme for SMEs and cutting Cut Employer National Insurance contributions
- Help SMEs keep up with the acceleration of digital transformation by introducing a Digital Voucher Scheme to support growth and ensure they can seize future business opportunities
- Create an SME ISA to encourage individuals to invest their savings in helping UK SMEs to grow and get the capital they need
- Expand the range of investible opportunities in UK SMEs for non-specialist investors such as ordinary savers
Changes to PAYE Legislation
The Chancellor should use the Budget to drop new PAYE legislation, say tax and advisory firm Blick Rothenberg. Robert Salter a tax director at the firm spoke to Business Leader on the topic.
In the last few days HMRC have lost another case on the issue of IR35 – the legislation which applies to people, who are allegedly hiding their ‘deemed employee’ status and operate through a Personal Service Company (PSC), rather than simply as a sole trader in their own name.
The Government has consistently claimed that some 90% of freelance contractors operating through PSCs don’t account for PAYE and NIC correctly and if they did, it would bring in another £2bn to the treasury.
It is for this reason that the chancellor plans to bring in legislation to transfer PAYE obligations to the clients of PSCs from April 2021. However, the chancellor needs to fix this before the Budget. There is absolutely no point in having court cease after court case on the hope that he can make this legislation work.
The reality is that HMRC actually lose around 75% of the cases that they take to court in this area. So, the suggestion that they can legitimately get £2bn more in lost revenue per annum by simply transferring the PAYE obligation to clients of PSCs won’t work.
Rather than blundering through the existing (and very complex and unclear) regulations, the chancellor needs to consider other ways of raising funds from PSCs.
The chancellor could increase the corporate tax rate for PSCs by two or three percent which would bring in a large part of the £2bn and minimise complexities for business.