What does today’s Autumn Budget mean for UK businesses?

UK Parliament

Chancellor Rishi Sunak is currently giving his Autumn Budget speech to the House of Commons, and Business Leader has accumulated the views and opinions of some industry experts to look into what it all really means for companies across the UK.

A post-Covid age of optimism?

Businesses are being urged to take full advantage of fiscal incentives and reliefs to aid their recovery as the economy rebounds from the pandemic and growth forecasts show signs of improvement.

In his Budget Statement, Chancellor Rishi Sunak confirmed that the Office for Budget Responsibility (OBR) has revised up growth forecasts for the economy, which it expects to return to pre-Covid levels by the turn of the year.

Instead of announcing more tax increases, the Chancellor has chosen to focus on increasing spending in areas that will drive economic growth in order to increase the tax take and re-balance the economy in the wake of the pandemic.

Business rates reform and retail

The Chancellor announced plans to proceed with reforms to the business rates system by ensuring rent re-evaluation takes place more frequently – every three years from 2023. From 2023, he also announced that businesses making property improvements will not pay anything extra in business rates for 12 months.

For retail, hospitality & leisure businesses, the Chancellor announced a new 50% business rates discount up to a maximum of £110,000.

Rebecca Wilkinson, tax partner specialising in the property and construction sector at accountancy firm, Menzies LLP, said: “These changes could help to kickstart the redevelopment of the high street as retailers in particular start to feel more confident about investing in improvements to their properties, without incurring a hefty business rates penalty for doing so.”

Jon Leedham, Head of UK Regions and Managing Partner for Midlands at Cushman & Wakefield, comments: “The 50% cut in business rates for retail and hospitality businesses,  albeit only for 2022 -2023, will be a welcome boost for those  “qualifying” retailers and the leisure and the hospitality businesses across the region who were adversely impacted by the pandemic and attempting to recover.  Replacing the Business Rates system and starting afresh is not however, on the cards.  Reforms are preferred to make the existing system fairer with the only hint of an Online Sales Tax  in that Government is to consult on how this might, if introduced, be used to fund business rate reductions.  This will disappoint a good many who were looking for a system which more fairly levels up the playing field between bricks and mortar, and online operators.”

Incentives for capital investment and manufacturing

The Chancellor announced that the Annual Investment Allowance (AIA) will not drop to £200,000 at the end of this year and will stick at the much higher level of £1 million until March 2023.

Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: “This gives businesses a bit more certainty so they can plan ahead to make investments over the next 18 months. It should also help to bolster confidence at a critical time when many firms are concerned about rising costs and supply disruption.

“Some businesses that had been planning to invest in new machinery and equipment before the end of year had been worried about being able to complete them in time, due to the current supply shortages. This will allow them more time.”

Leedham comments: “Although the majority of the £6.9billion for England’s regional transport projects is not new and had already been promised, today’s announcement is positive news for the West Midlands as it moves to greener modes of transport as part of the Governments levelling up agenda. It follows Andy Street’s announcement last week that the West Midlands has secured £1.05 billion for projects to include more EV charging facilities, cycling routes and train stations.

“There is also a commitment of £1.4 billion of expenditure for the most innovative sectors of Life Sciences and automotive, with a regional focus on the Midlands, to include the production of electric vehicles. Whilst the detail will need to be considered this is exciting news as the region builds on its leading expertise in these areas.”

Incentives for innovation

The Chancellor announced plans to expand the scope of R&D tax relief to include investments in cloud computing and data costs. He also announced plans to amend the system to prevent activity taking place outside the UK from qualifying for R&D tax relief. He also announced a further £22 million funding for R&D activity, separate from the Government’s investment in R&D tax credits.

Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: “This looks very favourable for businesses investing in innovation across industry sectors as more of their investment activities will qualify for R&D tax relief from April 2023. However, this scheme is still not used as much as it could be and businesses should seek advice about whether they could be submitting claims in the future.”

Investing in skills

As part of a package of funding for skills and education, the Chancellor announced a significant increase in funding for apprenticeships. As part of this package of funding, the Government is planning to introduce an enhanced recruitment service to support SMEs in finding new apprentices. The Chancellor has also extended the £3,000 apprentice hiring incentive to the end of January 2022 (it was due to end on the 30th November 2021).

Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: “Employers have been hiring more apprentices and take up of the £3,000 apprentice hiring incentive has been strong. Extending the incentive for a few more months will allow businesses more time to take advantage of the support available and help with sourcing suitable candidates will also be helpful.”

What does an increase in the national living wage really mean for businesses?

The National Living Wage (NLW) will rise to £9.50 from 1 April 2022. This represents an increase of 59 pence or 6.6 per cent. The Low Pay Commission’s recommendations set the minimum wage back on track to reach the Government’s target of two-thirds of median earnings by 2024. The recommendations were unanimously agreed by Commissioners and accepted in full by the Government.

Sandra Rowley at card payment solutions provider takepayments.com comments on the announcement: “While the announcement of the rise of the minimum wage is welcomed for workers, for small businesses owners this is another cost challenge to running their business.

“On top of the increase in energy bills, increase in petrol costs, rise in inflation and the confirmed national insurance increase, this 6.6% increase would require an additional £1,000 per year for minimum wage full time workers. Whilst there is some welcome news in the budget for hospitality, the overall business environment will remain challenging for those small, independent businesses in the UK.

“One in four (28%) small business owners think the government should offer them extra support to help cover the minimum wage increase, according to our annual business trends report. This extra support could help businesses continue to contribute to struggling economy.”

There is a growing number of experts that have criticised the move, stating that more is needed to help deal with wider societal issues.

Steve Bee, director of WorkLife by OpenMoney said: “An increase to national living wage will be welcome news for people on low incomes, but just addresses part of a much bigger problem. Our latest Small Business Monitor research found that some 27% of SMEs have been approached by employees with concerns about their personal finances since April alone.

“This reflects the extent to which many UK workers are still feeling the financial strain brought on by the pandemic. Poor financial health can easily impact people’s mental wellbeing too, so it is essential that firms continue to review the support they have in place and what else they could be doing to meet employees’ changing needs.

“If a firm is aware some employees are struggling but can’t give pay increases, then adding practical financial support like free financial advice as an employee benefit could be an effective but affordable means of helping employees to strengthen their financial foundations. Employers can also get creative and think about remunerating employees in a different way – such as through employer paid benefits like death in service cover or group income protection cover – neither of which are taxable as a benefit-in-kind.

“This is really important because, for many people, the workplace could be the only place they will be able to access much-needed support right now.”

Impact on SMEs

Following today’s series of announcements, UK SMEs are reacting Sunak’s new measures.

John Rozenbroek, COO/CFO at Capify, comments: “SMEs across the UK will have been listening carefully to today’s Autumn Budget to see what support would be on offer for businesses.

“The extension of the Recovery Loan Scheme is positive news for some, but the publishing of the Business Rates review and some early reforms was a bigger announcement. Revaluations every three years, investment relief to encourage businesses to adopt green technology and a new improvement relief to fund property changes were all welcome news. The abolishing of the HGV levy until 2023 and freeze on HGV duty further the positive picture, helping reduce supply chain issues for some UK SMEs.

“However, there is no doubt that 2022 will squeeze cashflow and profit margins further, with corporation tax rising to 25% and a 1.25% increase in employers’ NI contributions for SMEs to manage. OBR predictions for growth for the year have been revised up from 4% to 6%, so the hope will be that the economy continues to recover strongly, and the UK’s business community sees the benefits of that growth.”

Has the Government done enough to help businesses?

Dominic Bourquin, Tax Consultancy and Corporate Finance Partner, at accountancy firm MHA Monahans believes the Government hasn’t done enough for businesses.

He comments: “The changes to business rates – a 50% relief for hospitality, retail and leisure and the cancellation of the multiplier increase – are welcome, but cannot be called reform. These measures are clearly introduced as a reaction to the pandemic, to help those businesses that have suffered most. Rightly so, but let’s not pretend this is the reform that has been talked about for more than a decade.

“The simple fact is that our business rates tax is inequitable in the modern world. There was no mention of taxing online businesses more highly, for example, although we understand a digital sales tax is coming. And, because these are reliefs they can be taken away at any time. I welcome the boost to businesses that this will offer, but I would suggest what is needed is a change to the entire system, not a sticking plaster.”

Nimesh Shah CEO of tax and advisory firm Blick Rothenberg feel underwhelmed by today’s budget. He said: “It was a Budget about managing the rising costs of living, under the threat of interest rate increases, and more infrastructure investment for the economy. Despite yesterday’s speech practice, it was an underwhelming Autumn Budget statement from the Chancellor, Rishi Sunak.

“The government had tactically already announced the Health and Social Care Levy last month – alongside the March Budget announcement to freeze personal allowances for the next 5 years, working families will be worse-off from next April. A family of four with one working parent earning £62,000 will be £649 worse-off per annum in 2022/23 than 2010/11 with changes to rates, allowances, and thresholds.

“There was some limited respite for families – freezing of fuel duty, an increase to the National Living Wage to £9.50 and a change to the mechanism for tapering universal credit, but it doesn’t go far enough, especially with a 1.25% increase to National Insurance coming next April.

“There was some relief for businesses – an extension of the annual investment allowance, which has become customary practice, a broadening of qualifying expenditure for R&D tax relief and a business rates discount for businesses in the tourism, hospitality and leisure sector.

“The time the Chancellor spent talking about niche taxes during his speech highlighted that he had run out of things to talk about – reform to tonnage tax, air passenger duty and alcohol duty have never had so much attention, yet no mention of income tax, National Insurance and VAT (the big 3 tax revenue raisers).

“Rishi Sunak wants to be a Chancellor that reduces taxes, but we have heard that before, and the Chancellor has not hidden his desire for fiscal responsibility against the backdrop of the £300 billion cost of the pandemic and £2 trillion of national debt. The next Budget will be critical and the Chancellor may finally deliver on an increase to capital gains tax, a reform of inheritance tax and revisit the report on a new wealth tax.”

An electric future?

Oliver Shaw, CEO at Kalibrate spoke to BUsiness Leader about how today’s announcement has imapct the EV market.

He said: “Today’s Autumn Budget shows that the UK government understands the importance of investing in EVs as it doubles down on its Net Zero strategy. Those in the automotive industry will look at how to leverage the new 30bn relief package to contribute towards “green industries of the future”. Growth in the Midlands and the North East of England with £800m of the £1.4bn ‘Global Britain Investment Fund’ grant designed to attract overseas investment from the likes of Ford will also be vital to creating a fully functioning and effective EV infrastructure.

“However, the truth is that the current infrastructure within the UK isn’t ready to support widespread EV adoption; the end of 2020 saw the first of 100 planned electric forecourts in Essex but this needs to be quickened to meet the new government targets. Retailers will also require the right guidance as they invest in EV charging points in the right location and with the right partners. Currently, nearly nine-in-10 organisations see the EV market as a future revenue driver, but over half (57%) find it difficult to anticipate where EV charging infrastructure would be most useful.

“The government must continue down this road of providing incentives that encourage adoption, while investing in the EV infrastructure and providing businesses with the funding opportunities to play their part in enhancing the UK’s charging network by rolling out facilities at locations drivers want to visit.”

Impact on R&D

Responding to the expansion of the R&D Tax Credit to include spending on data and cloud costs, The Entrepreneurs Network’s Research Director Sam Dumitriu, said: This is a necessary and overdue change. While generous by international standards, the R&D Tax Credit has become outdated and out-of-touch with the way innovation works in tech. Research and development in AI and machine learning is reliant on access to data and cloud computing power. If startups can’t claim these costs as R&D spending, they are put at a disadvantage relative to tech giants who have masses of user data and large servers.

“When we first called for reform in our Startup Manifesto written in partnership with startup lobby group Coadec in 2019, over 250 of Britain’s leading entrepreneurs backed our call. I suspect many won’t be waiting till the alcohol duty reforms come in next April to uncork the bubbly.”

Are we set for a ‘skills revolution’?

Following today’s announcement of a £3bn investment from the Government for a ‘skills revolution’ Sir Charlie Mayfield, Chairman of QA shared his thoughts on the funding.

He said: “The announcement of £3.8bn investment to support a skills revolution is extremely good news for individuals and businesses alike. Employers up and down the country are in desperate need of digital skills, and this investment will help close that gap, and deliver the promises of ‘levelling up’ this Government is consistently promising. There are 100,000 open tech roles every month, and estimates suggest half the workforce or 15m people lack the digital skills employers need – without action that’ll rise to two-thirds by 2030.

“The pressure is now on the government to deliver, and help individuals and businesses take up the opportunity this funding affords, so that we do not risk squandering the potential to strengthen our economy.

“The £550m announcement to quadruple places on digital bootcamps has the potential to immediately impact the digital skills crisis. QA can vouch first hand to the success of these Bootcamps, with over 70% of participants on our pilots successfully getting a job upon completion.

“However, the financial commitment means nothing if we are not simultaneously working to change perceptions that surround a career in technology. Government and employers need to work together to bust a lot of myths that put people off – and this needs to start from the ground up.

“Research conducted by QA this year revealed that young people in the UK hold worrying misconceptions about what a career in technology requires. 77% of young people believe that an aptitude for maths and science is essential, while one in five believe they cannot afford the training required for a career in tech. This is a worrying perception when these digital bootcamps are free at the point of access and require no previous STEM training. Busting these myths is essential to ensure a pipeline of talent into desperately needed jobs in the UK.”

Scale-up visa?

Today’s Budget announcement has provided further information around the UK’s scale-up visa. Tijen Ahmet, head of business immigration at law firm, Shakespeare Martineau talks about how this visa will be particularly useful for tech-based and knowledge-intensive industries, but that industries which rely on ‘lower skilled’ yet vital workers, will not feel the benefit.

She comments: “Immigration is clearly on the chancellor’s agenda and recent calls from businesses to address global talent issues obviously haven’t fallen on deaf ears. The chancellor’s Budget sets out again to keep the UK at the forefront of global innovation and recognises that people are central to that goal. The scale-up visa will be particularly useful for tech-based and knowledge-intensive industries which rely on attracting the brightest minds from across the world.

“However, there is an elephant in the room and this Budget comes at a time where a lack of European drivers is causing a nationwide supply chain crisis. The temporary visa for HGV drivers has had a lukewarm reception and there is much more to be done to ensure international drivers are accessible to the UK labour market. Recognising haulage drivers as skilled workers, or updating the shortage occupation list temporarily, would be a simple, practical step that could have a huge positive impact.”

Will public stomach higher taxes to fund spending splurge?

Faisal Sheikh, Lecturer in Accounting and Finance at the University of Salford Business School, reacts to the Budget, announced by Chancellor Rishi Sunak today.

Faisal said: “I predict that from a policy perspective monetarism will remain on the backburner and Keynesian economic policy (high spending underpinned by burgeoning taxes) will remain ‘King’ for at least a generation. The question is whether the British public can stomach tax rises which are currently funding the continued spending spree?

“The most eye-catching announcements are an extra £4.7bn for children’s education, an extra £2bn for further education and significant cut in Air Passenger Duty which be welcomed by the battered travel and tourism industry. There is also Christmas cheer with a cancellation of a planned rise in the duty on spirits, wine, cider and beer.

“Personally I find the cut to Air Passenger Duty problematic given that we are experiencing irreversible climate change and scientific experts are warning of mass environmental upheaval such as desertification and acute water shortages.”

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