SUMMER BUDGET 2015: Swindon business reaction

July 8, 2015
By

Many of the measures in Chancellor George Osborne’s Summer Budget received a warm welcome from Swindon experts – but there was concern over the impact of his flagship National Living Wage.

Dominic Bourquin, corporate tax partner at Swindon accountancy firm Monahans, said the Budget had been good for business and had taken away some of the uncertainty for employers, business owners and investors.

“If you’re an entrepreneur looking for a bit more certainty, you’ve got good reason to have a smile on your face,” he said.

He singled out the fixing of the annual investment allowance permanently at £200,000 from next January – meaning companies can deduct the full value of certain equipment and machinery from their profits before tax is calculated rather than having to settle for tax relief over several years.

“That will be music to the ears of MDs considering investing heavily in plant and machinery where there had been uncertainty as to the level of the allowance from January,” he said.

Another bonus was the cut in corporation tax from 20% to 19% in 2017 and to 18% in 2020. “Although clearly we’ll have to wait and see what the net result to companies is once the National Living Wage is fully implemented in 2020, and employers are paying a mandatory minimum hourly rate of above £9.” 

The changes to the taxation of dividends would affect a number of business owners who pay themselves through dividends from companies as it was cheaper than paying a salary. “But we will not know more until we have run the numbers. Either way these new measures will close the tax gap between dividends and salary,” he said.

The very significant announcement for Mr Bourquin was the one concerning pensions. A Green Paper is planned, which will look at the pension system in its entirety – and could be a gamechanger in terms of how people plan for later life, he said.

“It could also sound the death knell for tax relief on pensions altogether. It’s quite feasible that we could shift from the current employer/employee model with tax relief for contributions, to one very similar to the current ISA system instead.”

Malcolm Emery, partner and dual-qualified chartered tax adviser and solicitor at law firm Thrings, which has its largest office in Swindon, and said the Chancellor missed the opportunity to reduce the VAT rate of 20% – one of the highest in Europe.

“A flat rate reduction of 2.5% would have been a welcome relief to businesses since it is their customer base which is ultimately responsible for this cost at a time when the effects of the austerity measures put in place by the coalition government are still being felt,” he said.

However, he described the reduction in the rate of corporation tax rate as “clearly good news for business [which] will help companies rebuild their reserves and bolster their ability to reinvest”. 

The relaxation in Sunday trading laws would also be welcomed by many businesses, he said, but added that some smaller retailers may be less enthusiastic given the increase in competition from supermarkets and other large retail outlets freed from the current Sunday trading constraints.

Sharon Omer-Kaye, tax partner in accountancy firm’s Baker Tilly’s Swindon office, said the Budget had been far more significant than expected.

“[Chancellor George Osborne] seems to have shown some creativity in navigating around the triple lock, finding numerous areas for generating revenues while announcing some eye-catching measures such as the new Living Wage, designed to generate a feelgood factor about progress in the economy,” she said.

“In addition to the heavily trailed changes to the inheritance tax threshold which increases to up to £1m for a couple over their lifetime reflecting the value of a family home, the other significant announcement concerned buy to let property owners, who will be adversely affected by mortgage interest being abolished.”

She said corporate businesses were set to benefit from the further reductions in corporation tax although this could be offset by higher costs for employers such as meeting the apprenticeship levy and the Living Wage requirement.

“There will also be a review of how dividends are taxed, the outcome of which seems likely to be that most recipients will be no worse off, and may actually be better off. However recipients of large dividends from private businesses and holders of large investment portfolios may well stand to lose out,” she said.

Swindon accountants Banks BHG welcomed the corporate tax cuts and increase in the annual investment allowance but said other Budget measures, including the simplification of the dividend system could hit small business owners.

Director Richard Mathews said: “Raising the annual investment allowance to £200,000 and cutting corporation tax to first 19% then 18%, is very good news for businesses.

“But we need to look carefully at what the Chancellor called the simplification of the dividend system, and how that will affect business owners.”

The introduction of a National Living Wage was a positive step as was the change to Inheritance Tax, he said.

But he added: “There may be cause for concern over the mortgage interest relief changes to property landlords, and this will need careful examination.”

Paul Oldham, regional director at BGF (Business Growth Fund), which was set up to help the UK’s growing smaller and medium-sized firms, welcomed the Chancellor’s focus on regional growth.

“We know from talking to small and mid-sized businesses across the South West that confidence is up and that the landscape is ripe for growth. Empowering city regions to help businesses in key areas like skills, infrastructure and planning can help improve these conditions and build on the example of the Northern Powerhouse.”

KPMG South West tax partner Julian Cockwell said fixing the annual investment allowance at £200,000 would encourage small and medium-sized businesses to invest in new plant and equipment and could help towards plugging the UK’s yawning productivity gap.

“The annual investment allowance has been up and down like a yo-yo over the last few years, so the announcement gives much-needed certainty,” he said.

“Britain’s makers, doers and growers will see particular benefit from this. So often, new equipment and technology is the key to improved productivity for our manufacturers, retailers and agricultural businesses, so stimulating investment from them will go a long way to helping address the UK’s productivity gap.”

Accountancy firm EY’s South West tax partner Karen Kirkwood said businesses had been left with mixed messages from the Budget.

“The promise of cuts in corporation tax rate from 2017/18 was tempered by large business being the biggest funder of the Chancellors’ Budget through the requirement to pay taxes three months earlier. This measure alone gave the Chancellor almost £4.5bn in 2017-18 and echoes the change that Gordon Brown introduced in his first Budget back in 1997.

“On a positive note, this cashflow raid also allowed the Chancellor to fund the rise in the annual investment allowance to £200,000.”

 

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