A Budget for levelling up, investment and recovery

John McCaffery

Chancellor Rish Sunak delivered a Budget focused on levelling up yesterday, with few surprises other than the big hike in corporation tax from 2023.

John McCaffery, tax partner and head of tax at Manchester Chartered Accountants Alexander & Co, offered his view on the day’s events.

He said: “Many other announcements were widely predicted, with no other tax rate increases and a freeze on most tax allowances. Most surprisingly there was no increase to Capital Gains Tax.”

He added: “Before the budget, the Chancellor was committed to levelling up.

“The Budget looked to deliver this, with Rishi devoting a significant section of his Budget speech to the subject.

“Importantly for the North West, Liverpool has been chosen as one of the eight locations for the new Freeports. This has the potential to significantly benefit the whole of the North West region.

“Liverpool’s connectivity to the region could provide a catalyst across the entire Northern Powerhouse.

“The tax incentives of operating in a Freeport area are significant. These include enhanced capital allowances for companies investing in plant and machinery for use in Freeport tax sites, full relief from Stamp Duty Land Tax on the purchase of land or property and Full Business Rates relief, to apply for five years from the point at which each beneficiary first receives relief.

“Additionally, the Government also intends to make an employer National Insurance contributions relief available for eligible employees in all Freeport tax sites from April 2022.

“This would be available until at least April 2026, with the intention to extend for up to a further five years to April 2031, subject to a review of the relief.”

Mr McCaffery said this was also a Budget for investment.

“In relation to access to capital and encouraging investment, companies will be able to carry back up to £2m of tax losses from each of the last two years, to offset against profits arising in the last three years.

“This will generate some much-needed tax refunds for these businesses.

“However, this is a bit of a double-edged sword. Whilst it generates immediate cash, it reduces the amount of losses available to set against future corporation tax, which is set to increase to 25%.

“Whilst this tax increase looks set to only impact businesses with profits of more than £250,000, those with profits of more than £50,000 will pay tax on a sliding scale.

“If this operates in similar ways to marginal rates of corporation tax in the past, the effective rate of tax on profits between £50,000 and £250,000 is estimated at 26.5%.

“Taxation is always a significant issue for any business and ensuring government incentives and allowances are correctly applied against company profits and losses remains a complex affair.”

Finally, Mr McCaffery said this was a Budget for recovery, too.

“The overarching theme of the Budget is one of recovery and getting the country back on its feet. Many elements of support to help the economy recover are continuing, with most of the impact from increased taxes later down the line, hopefully when the economy is generating more income.

“The freezing of tax allowances, such as the inheritance tax nil rate band and the pension lifetime allowance, will, however, result in people paying more taxes going forward.

“Key support policies were, as expected extended, from the Furlough Scheme and the Self Employed income Support Scheme, through to an extension on the VAT reduction for the hospitality industry and Business Rates reliefs.

“There was also a nod to the housing market, with the current Stamp Duty holiday extended for a further three months, and a partial extension following this.

“Much of the measures and the spirit of the Budget is based on the country being in a much better place by the autumn, which we all indeed hope and believe it should be.”

Close